Binance, the largest cryptocurrency exchange globally in terms of trading volume and one of the most influential projects in the crypto industry, is currently stuck in an internal fight with watchdogs. However, despite all the dark moments, the project still continues to live and prosper. Let's take a closer look at the regulatory claims that Binance has encountered and the potential implications of this mounting pressure.
Binance quick recap
Binance was established in China in July 2017 as a popular cryptocurrency exchange. However, due to the regulatory pressure in the country, the team decided to leave China just four months after its launch.
Binance Exchange was founded by Changpeng Zhao, a prominent Chinese businessman, who is ranked as the 190th richest person in the world by Forbes, with an estimated net worth of $10.2 billion. For comparison, one of the largest technology companies in the world, Toshiba, has a market capitalization of $13.99 billion.
Zhao often says that his crypto exchange operates without a headquarters, citing that it does not need a centralized physical office to handle decentralized cryptocurrencies.
"Wherever I sit, is going to be the Binance office," Zhao says.
However, this is not entirely true. Binance does have offices just like any other crypto organization that is forced to interact with the traditional financial system. Company’s headquarters are located in major cities like Bahrain, Dubai, and Paris.
Over the past six years, Binance has grown to become the largest crypto exchange in the market. The screenshots below show that the closest competitors are lagging behind in terms of trading volume.
Binance's position in the top 5 crypto exchanges in the spot (trading cryptocurrency directly) market. Binance is also in first place among the top 5 crypto exchanges in the derivatives (trading financial instruments based on cryptocurrency) market. Source: CoinMarketCap
The Binance ecosystem includes dozens of services and platforms. The company owns the largest digital asset market data aggregator, CoinMarketCap, and one of the most popular cryptocurrency wallets, Trust Wallet.
Main watchdog's claims against Binance
Binance has faced numerous accusations from regulatory authorities, though we will focus on the most important ones.
When it all started: first Binance slaps
On October 29, 2020, Forbes published a devastating article alleging that Binance was illegally earning money from American investors using some shadow schemes. This claim was based on a leaked document called "Tai Chi", which exposed these fraudulent tricks.
According to journalists, one of the tricks was giving US customers access to Binance.com (the main platform). Unlike Binance.US (the American Binance arm), Binance.com has additional features as leveraged cryptocurrency derivatives trading, which the platform cannot offer to Americans officially.
To deal with the American market’s special regulations, Binance launched Binance.US on September 18, 2019. But according to Forbes, that was just a ploy to keep the watchdogs off their backs. They reckon Binance.US is nothing more than a smoke screen to keep those regulators at bay.
Subsequently, on July 2, 2021, local Thai regulators accused Binance of operating without a proper license.
Tough times in 2023
On February 13, 2023, things got even tougher for Binance. The storm started when the New York State Department of Financial Services (NYDFS) claimed Binance's stablecoin, Binance USD (BUSD), as an unregistered security. This led the token issuer, Paxos, to throw in the towel and stop minting BUSD. As it was not enough, the US Securities and Exchange Commission (SEC) joined the claims. It seemed as if the watchdogs were working hand in hand, and some could not but scoff at their strong cohesion.
But the hits kept coming. On March 27, 2023, the Commodity Futures Trading Commission (CFTC) accused Binance of violating derivatives rules (financial instruments based on other assets, such as Bitcoin or gold).
On June 5, 2023, the SEC slapped Binance with a whopping 13 charges. The regulator accused the exchange of engaging in illegal activities within the United States and breaking securities laws. In June 2023, the SEC’s list of illegally issued cryptocurrencies expanded to include 68 positions, and even Binance's native token, BNB, found itself on the blacklist. To make matters worse, a large number of these “illegally labeled” tokens were actively traded on Binance.
Among the allegations, the SEC claimed that Binance provided US customers with access to Binance.com instead of their American arm, Binance.US, in an attempt to circumvent the watchdog's restrictions. This tied back to the accusations made by Forbes in October 2020.
Furthermore, there were accusations that Binance's team misused clients’ money in fraud schemes, which dealt a significant blow to the company’s reputation.
As usual, Binance representatives rejected all the accusations.
Some members of the crypto community believe that the pressure Binance faced in 2023 might be linked to the FTX crypto exchange collapse in November 2022. According to this theory, FTX founder Sam Bankman-Fried’s funding of the US Republican Party led to a backlash from politicians after the collapse, leaving them without funds. Members assumed that the pressure on Binance was nothing more than revenge for the FTX incident. However, the timing and facts did not quite line up, as Binance had been under US watchdog investigation since 2018. Still, this situation inspired the crypto community to create some amusing memes.
Next, on June 8, 2023, Binance was accused of providing false information to the US Senate. Senators claimed that Binance.US was not operating as an independent entity as the platform’s team had stated.
And the US was not the only country to hit Binance in 2023. The exchange also faced scrutiny from the authorities in various jurisdictions. In particular, Ireland and Malta, Belgium, Austria, the Netherlands, Germany, Brazil, and France all filed claims against Binance. The allegations ranged from accusations of illegal operations within these countries to violations of derivatives rules.
Impact of regulatory pressure on Binance
The exchange experienced upheavals that forced members of the crypto community to discuss its possible collapse. For instance, when the US SEC and NYDFS labeled BUSD stablecoin as a security, $831 million worth of assets were withdrawn from the platform in a single day. Similar outflows of $503 million and $1.6 billion occurred in response to the SEC’s June accusations and the CFTC’s March claims, respectively.
The pressure on Binance has also had an interesting effect on the crypto community. Some members turned back to the traditional financial system, expressing doubts amidst regulatory turmoil.
Despite the storm of accusations, the crypto exchange has managed to weather the challenges so far and retain its leadership position. But analysts note that Binance's market share is declining: it reduced from 66% in January 2023 to 56% in June.
The future of Binance
Over the years, Binance has suffered a tremendous number of obstacles, many of which would be fatal for many other crypto industry representatives. Despite facing accusations of illegally issued securities, regulatory backlash from the SEC and other watchdogs, and being banned in several countries, the exchange has managed to hold on to its leadership position in the market. Binance is unlikely to collapse in the immediate future, but there are undoubtedly many difficulties lying ahead.
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This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.