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Binance battles ‘FTX redux’ fears as US regulators burn crypto giant – but analysts think it will weather the storm

  • Binance is on fire from all angles as US regulators close in on the world’s largest crypto exchange.
  • The SEC believes it is mining unregistered securities, while some reports suggest Binance has engaged in secret funds transfers.
  • Here’s what’s going on with Binance and where the company is under pressure.

Binance, the world’s largest cryptocurrency exchange, is facing one of the toughest times since it was founded by Changpeng Zhao and He Yi in 2017.

Fighting on multiple fronts at the same time, the digital asset giant faces a series of US regulatory investigations while trying to bolster investor confidence damaged by the so-called crypto winter and a series of high-profile bankruptcies and scandals. in the industry.

Following the shocking implosion of Sam-Bankman Fried’s FTX late last year, concerns have grown over whether Binance faces similar risks. Type “Binance” in search analytics tools such as ReplyThePublic and they throw out a series of queries including “will binance crash like FTX” and “can binance be trusted”, or even “binance is next”.

The company is now facing legal and regulatory investigations into possible violations of anti-money laundering rules and questions about whether it properly registered certain crypto derivatives. The grills come as regulators tighten their grip on the crypto industry following the collapse of FTX.

FTX redux fears

John Reed Stark, a former lawyer for the United States Securities and Exchange Commission, tweeted earlier this month that Binance is “The FTX redux and an epic bank rush seems inevitable.”

Crypto industry experts, however, do not seem so worried about the future of Binance.

Alex Svanevik, CEO of crypto analytics firm Nansen, and Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, expressed confidence in the exchange despite recent setbacks. Tom Wan, research analyst at 21Shares, noted that Binance has proven itself despite regulatory repression and market turmoil.

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

GlobalBlock’s Svanevik and Sotiriou highlighted the $65 billion on reserve as an indicator that the business is in good shape.

“I think Binance is here to stay and has amassed 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 sufficiently capitalized, even 100% solvent,” he added. .

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

“Binance holds all client assets in segregated accounts which are identified separately from any accounts used to hold Binance-owned assets. It is important to note that our users can withdraw their funds whenever they wish – as has been demonstrated over time and again,” the spokesperson added.

“The Regulatory Inspection Glove”

Although the exchange does not face existential threats, it will likely remain under pressure from regulators and customers seeking greater transparency, Robert Le, a crypto analyst at the data firm and cryptocurrency firm, told Insider. of PitchBook software.

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

Ed Moya, Principal Analyst at OANDA, shares a similar view.

“Binance is about to go through an intense gauntlet of regulatory inspections of its finances, operations, and compliance. The scrutiny will be relentless and potentially crippling for Binance. It appears Binance will not have an easy path to operate. in the United States,” he told Insider.

Binance is strengthening its compliance infrastructure by investing in technology and related human resources, according to the company’s spokesperson.

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

A botched plan to dodge US regulators

A recent Wall Street Journal investigation revealed that Binance hatched a plan years ago to evade scrutiny from US watchdogs as authorities hinted they intended to crack down on US-based crypto firms. foreign.

The strategy aimed to create a US entity completely independent of Binance’s global operations. So it created Binance.US in 2019. Founded in 2017, had largely operated on a floating basis from hubs in China and Japan. – putting it at a distance from regulatory controls.

But the plan turned out to be flawed given that the two platforms were more related than publicly disclosed, according to the WSJ. They both mixed personnel and finances, and even shared an entity that dealt with cryptocurrencies.

If U.S. authorities decide the ties meant the crypto exchange had control of the U.S. platform, it could expose the company to enforcement action.

Client funds

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

While transferring funds may not be illegal, it could pose a risk to Binance investors. For example, Sam Bankman-Fried lost more than $8 billion in client funds after allegedly transferring FTX deposits for the operations of its sister trading company Alameda.

Secret transfers

Binance 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 from the exchange.

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

Unregistered titles

Binance’s US subsidiary also came under pressure after an SEC official said the company operated unregistered securities in the US, by CoinDesk.

The charges raised hurdles for a $1.3 billion deal between Binance.US and embattled crypto firm Voyager, in which the former planned to take over the latter’s assets. However, Voyager later received approval to sell its assets to Binance in a snub to the SEC.

The SEC has cracked down on major crypto firms, including Gemini, Genesis, and Kraken, for 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 BUSD token because it was considered an unregistered security.

This came after the regulator launched a lawsuit against Paxos for offering BUSD to its customers.

BUSD is the third largest stablecoin in the world behind Tether and USD coin, with a market cap of over $8.2 billion. according to CoinMarketCap.

“There are many unknown unknowns to conclude on Binance; however, the coming months will be critical in gaining transparency and clarity on Binance’s overall financial health in light of recent regulatory headwinds,” said Wan from 21Shares to Insider.

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