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Where will cryptocurrencies go after the Binance humiliation
Binance’s $4.3 billion deal reached with US authorities this week creates new complications for the world’s largest cryptocurrency exchange. But cryptocurrency enthusiasts are breathing a loud sigh of relief, saying the deal resolves much of the uncertainty hanging over their industry.
“It’s nice to wake up in the crypto world and not worry about what’s going to happen with Binance,” Matt Hougan, chief investment officer of crypto asset manager Bitwise, said on X, formerly known as Twitter. “2024-2025 is going to be amazing.”
It’s nice to wake up in crypto and not worry about what will happen with Binance. 2024-2025 is going to be great.
— Matt Hougan (@Matt_Hougan) November 22, 2023
The agreement, JPMorgan Chase analysts added in a note, puts an end to the “potential systemic risk arising from a hypothetical collapse of Binance”.
Michael Safai, partner at cryptocurrency trading firm Dexterity Capital, said Binance’s resolution “signifies a path forward for cryptocurrencies and confidence that the asset class will not be erased from existence.”
The movement in cryptocurrencies and related stocks in the aftermath of Binance’s announcement showed that investors largely shared that optimism.
Binance’s BNB crypto token (BNB-USD) fell 13% in the hours after his deal was announced – an example of the many challenges that remain now that he is under tougher government control – but then recovered on Wednesday as prices of other currencies stabilized.
Bitcoin (BTC-USD), the world’s largest cryptocurrency, grew 1% in the 24 hours following Binance’s announcement, while ether, the second-largest digital currency (ETH-USD), increased by more than 4%.
Shares of another large cryptocurrency exchange, Coinbase (CURRENCY), also rose more than 3% on Wednesday on possible expectations that it could prove to be a beneficiary of Binance’s problems.
The case of the bull
The bullish case for cryptocurrency is that the worst of its problems is now in the rearview mirror.
Bitcoin peaked at $68,789 in November 2021, but then collapsed in 2022 as the Federal Reserve began raising interest rates and a number of companies imploded, including cryptocurrency exchange FTX in November 2022.
A widespread crackdown on the cryptocurrency industry ensued. Regulators have sued numerous large players, including Coinbase and Binance. Earlier this month a jury convicted FTX founder Sam Bankman-Fried of defrauding customers, lenders and investors.
In this courtroom sketch, FTX founder Sam Bankman-Fried is the foreman of the jury reading the verdict in his fraud trial that ended Nov. 2. (Jane Rosenberg/REUTERS) (JANE ROSENBERG / Reuters)
Now investors are once again optimistic that the industry is ready for broader acceptance and regulatory clarity from Washington. They hope the Securities and Exchange Commission will soon grant approval for a spot bitcoin ETF, which would allow investors to gain exposure to the cryptocurrency without having to own it.
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Black Rock (BLK) is among the big names in financial management who have recently applied to launch such a product. Grayscale Investments is also pushing the SEC to approve the conversion of its bitcoin trust into a bitcoin spot fund following an August decision in its favor by a three-judge panel of the District of Columbia Court of Appeals .
The panel concluded the SEC acted “arbitrarily and capriciously” when it withheld Grayscale’s opinion application for conversion in 2022.
The next official stage for the SEC to accept or deny approval for a spot bitcoin ETF is January 10, although the SEC may approve applications sooner.
The end of an era
However, there are some reasons why investors should be cautious. The SEC still has a number of lawsuits pending against some of the industry’s biggest names, including Binance and Coinbase, as it seeks to force more players to register with the regulatory agency and classify digital assets as securities.
And the fact that Binance now has to operate with so much government scrutiny will certainly hamper what remains the largest cryptocurrency exchange in the industry.
Attorney General Merrick Garland announced the settlement with Binance in a press conference on Tuesday. (Anna Moneymaker/Getty Images) (Anna Moneymaker via Getty Images)
It’s “the end of an era,” said Yiannis Giokas, senior director of digital assets at Moody’s Analytics. “As digital currencies become more prevalent and institutional players enter the space, regulations and enforcement will become more stringent to ensure compliance and consumer protection.”
Binance’s pact with US authorities “marks the same inflection point we’ve seen before, at the intersection of the dot-com and post-dot-com eras,” Giokas added.
Binance pleaded guilty to criminal charges related to money laundering, conducting an unlicensed money transmission business, and fines for violations. Its CEO Changpeng Zhao agreed to resign, plead guilty to violating anti-money laundering requirements and pay a $50 million fine, while retaining majority control of the exchange.
Former Binance CEO Changpeng Zhao leaves the US District Court in Seattle on November 21. (David Ryder/Getty Images) (David Ryder via Getty Images)
Binance will also pay the largest fine any cryptocurrency company has ever had to pay – $4.3 billion to various US government agencies – and will operate with an independent compliance monitor for three years to ensure it complies with the terms of the plea agreement.
While the full terms of the US deal have not yet been made public, they are “likely onerous, robust and extraordinarily invasive,” John Reed Stark, a general counsel and former SEC lawyer, said on X, formerly Twitter.
What is known is that Binance must now review and report billions of dollars worth of transactions it has facilitated for suspicious activity, including $898 million in trades between US users and sanctioned users based in Iran.
The mandate also requires Binance’s full cooperation “in all matters” related to the agreement or “any other conduct investigated by the government” during the period of the agreement.
Richard Teng, the new CEO of Binance. (Abdel Hadi Ramahi/REUTERS) (Abdel Hadi Ramahi / Reuters)
According to Stark, this will likely become “increasingly burdensome, cumbersome and challenging” for the company.
Its new CEO, Richard Teng, faces many challenges in charting a new direction for the company while correcting past legal violations.
In the first 24 hours following the government announcement, customers withdrew a net $695 million from Binance, Binance reported data compiled by 21Shares.
This is significantly higher than Binance’s average daily withdrawals, but far from the largest since early 2023.
Traders see the Binance deal as “the industry finally turning the corner” and putting “to rest one of the lingering questions for cryptocurrencies in 2023,” said Dexterity’s Safai.
As for the future, “be prepared for a slower and more sustained pace of growth in cryptocurrencies,” he added.
David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrencies and other finance sectors.
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