Crypto panics, then taunts as DOJ announces ‘major action’ against tiny Chinese exchange Bitzlato

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Crypto markets swung to the brink of panic on Wednesday, braced for the worst after the Department of Justice (DOJ) announced a mysterious upcoming press conference regarding major international cryptocurrency action.

Bitcoin fell around 4.6% in a few minutes, ETH lost 5% in the same period. Crypto Twitter went into an anxious frenzy, speculating that another FTX-like implosion of a critical market player was imminent.

And then, a few minutes later, the dust settled: Bitzlato? What is Bitzlato?

At midday on Wednesday, federal prosecutors proudly announced criminal charges against Bitzlato, a Hong Kong-based cryptocurrency exchange. The founder of the exchanges, Russian national Anatoly Legkodymov, apparently known by the nickname Gandalf, was arrested last night in Miami.

Authorities say it failed to establish anti-money laundering requirements for Bitzlato, which allegedly handled some $700 million in illicit funds in its history, mostly in the form of transactions linked to the dark web market Hydra .

If convicted of operating an illegal money transfer business, Legkodymov faces a maximum sentence of 5 years.

Assistant Attorney General Lisa Monaco proudly touted the arrest as a blow to the cryptocurrency ecosystem and the elimination of a key member of a so-called crypto crime axis.

Few in crypto had ever heard of the company.

Bitzlato, compared to the size of most major crypto exchanges, is tiny. According to analyst firm Arkham, the Chinese exchange at its peak held no more than $6 million in funds.

Upon revealing the contents of the DOJ announcement, many in the crypto community took to Twitter to lambaste the agency for unnecessarily causing market hysteria.

A huge opportunity emerging for exchanges to capture all that massive Bitzlato volume now.

Hasaka (@HsakaTrades) January 18, 2023

If I had $1 for every Bitzlato meme posted in the last 30 minutes, I’d have more money than Bitzlato

db (@tier10k) January 18, 2023

Although most Twitter users scoffed at this disappointing reveal, some may have found it less amusing.

Prior to the DOJ’s announcement, many believed the agency would announce charges against Binance, the world’s largest cryptocurrency exchange. Federal prosecutors have been investigating the company for four years; Binance has been deeply entangled in the collapse of rival firm FTX and recently admitted to some unorthodox business practices.

In the minutes leading up to the DOJ press conference, Binance CEO Changpeng Zhao, better known as CZ, went so far as to tweet a cryptic message implying that he was preparing for fake news or attacks on his business.

I will try to keep 2023 simple. Spend more time on fewer things. Do’s and don’ts.

1. Education2. Compliance3. product and service

4. Ignore FUD, fake news, attacks, etc.

In the future I would appreciate if you could link to this post when I tweet “4”.

CZ Binance (@cz_binance) January 2, 2023

Perhaps due to these ominous signals, Binance’s net outflows reached $60 million in the past hour, according to analytics firm Nansen.

BTC and ETH, meanwhile, both recouped around half of their losses incurred earlier in the day at the height of the market panic. BTC rallied to $20,923 at writing, according to CoinGecko; ETH recovered to $1,546.

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