Binance battles ‘FTX Redux’ fears as regulators fire up the crypto giant

  • Binance is being fired from all angles as US regulators close in on the world’s largest crypto exchange.
  • The SEC believes it is operating unregistered securities, while some reports suggest Binance is engaging in secret money transfers.
  • Here’s what’s happening with Binance and where the company is under pressure.

Binance, the world’s largest cryptocurrency exchange, is braving one of the roughest patches since its founding by Changpeng Zhao and He Yi in 2017.

The digital asset giant, fighting on multiple fronts simultaneously, is facing a series of US regulatory investigations, while also seeking to bolster investor confidence damaged by the so-called crypto winter and a series of high-profile industry bankruptcies and scandals. .

Following the shocking implosion of Sam-Bankman Fried’s FTX late last year, concerns have been raised whether Binance faces similar risks. Type “Binance” into search analytics tools like AnswerThePublic and they throw up a series of questions including “will binance collapse like FTX” and “can binance be trusted”, or even “binance is next”.

The company is now facing legal and regulatory investigations into potential anti-money laundering violations and questions about whether it has properly registered some crypto derivatives. The whim comes as regulators tighten their grip on the crypto industry following the collapse of FTX.

‘FTX redux’ fears

Former U.S. Securities and Exchange Commission attorney John Reed Stark tweeted earlier this month that Binance “FTX redux and an epic bank run seem inevitable.”

However, crypto industry experts don’t seem too concerned about Binance’s future.

Alex Svanevik, CEO of crypto analytics firm Nansen, and Marcus Sotiriou, an analyst at digital asset brokerage GlobalBlock, expressed their confidence in the exchange despite the recent hiccups. Tom Wan, a research analyst at 21Shares, noted that Binance has proven resilient despite the regulatory crackdown and market turmoil.

“I don’t think Binance will be the next FTX. They’ve been more transparent about customer deposits than FTX ever was,” Nansen’s Svanevik told Insider.

Both GlobalBlock’s Svanevik and Sotiriou highlighted Binance’s $65 billion in reserves as an indicator that the company is in good shape.

“I think Binance is here to stay and has built an empire that will be hard to disrupt,” Sotiriou said. “While there are concerns about Binance’s transparency, such as no corporate governance, no head office, no CFO and no reputable auditor, there is enough evidence for me to predict that they are adequately capitalized, if not 100% solvent,” added he to it. .

The exchange has never invested or “otherwise deployed” client funds without their consent, a Binance spokesperson told Insider in emailed comments.

“Binance holds all of its clients assets in segregated accounts that are identified separately from accounts used to hold Binance assets. It is important to note that our users can withdraw their funds whenever they want – such as time and money have demonstrated time and time again,” said the spokesperson.

‘Gauntlet of Regulatory Inspection’

While the exchange may not face existential threats, it will likely continue to face pressure from regulators and clients seeking greater transparency, Robert Le, a crypto analyst at data and software firm PitchBook, told Insider.

“We believe that the post-FTX regulatory environment will be much less favorable to Binance and they will face significant regulatory pressure in multiple jurisdictions. This means that the company will not only face significant financial fines, but also with the possibility of being forced to exit certain markets, restructure or completely separate the various businesses,” said Le.

Ed Moya, senior analyst at OANDA, has a similar view.

“Binance is about to go through an intense gauntlet of regulatory scrutiny regarding their finances, operations and compliance. The scrutiny will be relentless and potentially crippling for Binance. to operate,” he told Insider.

Binance is improving its compliance infrastructure by investing in related technology and personnel, the company spokesperson said.

Here are 5 instances where the crypto giant has come under fire from regulators or legislators.

A failed plan to evade US regulators

A recent Wall Street Journal investigation revealed that Binance devised a plan years ago to evade the scrutiny of US watchdogs when authorities hinted they were planning to crack down on overseas-based crypto companies. to press.

The strategy was aimed at creating a US entity completely independent from Binance’s global operations – which is why it founded Binance.US in 2019. Founded in 2017, largely operated in a free-floating manner from hubs in China and Japan – keeping regulatory scrutiny at bay.

But the plan turned out to be flawed, as the two platforms were more intertwined than disclosed, according to the WSJ. They mixed both personnel and finance and even shared an entity dealing with cryptocurrencies.

If US authorities decide that the links mean the crypto exchange has control over the US platform, it could expose the company to enforcement action.

Customer funds

Binance is also easing concerns about how it handles client funds following some reports that it used client assets for its own purposes, such as FTX. The exchange transferred $1.8 billion in stablecoin collateral to hedge funds, leaving investors exposed, according to Forbes, which reviewed on-chain data from Aug. 17 to early December.

While the shift in funds may not be illegal, it could pose a risk to Binance’s investors. For example, Sam Bankman-Fried lost more than $8 billion in client funds after reportedly transferring FTX deposits for operations at his sister trading firm Alameda.

Secret Transfers

Binance has secretly transferred $400 million from its US partner to a company run by the crypto giant’s boss Zhao called Merit Peak, Reuters reported last month.

Binance claims that Merit Peak and Binance’s US partner Binance.US operate independently of the exchange.

Former Binance US CEO Catherine Coley called the transfers “unexpected,” according to Reuters.

Unregistered Securities

Binance’s US affiliate has also come under pressure after an SEC official said the company is operating unregistered securities in the US, according to CoinDesk.

The allegations have thrown hurdles to a $1.3 billion deal between Binance.US and embattled crypto company Voyager, in which the former planned to claim the latter’s assets. However, Voyager was subsequently cleared to sell its assets to Binance in a resentment from the SEC.

The SEC has restricted major crypto companies, including Gemini, Genesis and Kraken, from operating assets that have not been approved by US regulators.


In another SEC intervention, crypto firm Paxos was ordered to stop minting Binance’s dollar-pegged token BUSD, as it was considered an unregistered security.

That came after the regulator filed a lawsuit against Paxos for offering BUSD to its clients.

BUSD is the world’s third largest stablecoin after Tether and USD Coin, with a market cap of over $8.2 billion, according to CoinMarketCap.

“There are a lot of unknown unknowns to come to a conclusion on Binance’s; however, the coming months will be crucial in bringing greater transparency and clarity to Binance’s overall financial health in light of the recent regulatory headwinds,” Wan said. from 21Shares to Insider.

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