Imagining A Cryptocurrency Landscape Without Binance

Fresh off its legal case against Coinbase
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, the Securities and Exchange Commission went after Binance with a vengeance. The company’s attorneys said it would grind trading at its U.S. subsidiary to a halt and force lenders to stop funding them, which has not really transpired at this time. However, the situation seems pretty dire. The SEC filed 13 charges against Binance, founded in Shanghai in 2017 and now headquartered in the Cayman Islands with servers worldwide.

At the core of the SEC fight is the charge that the Forbes billionaire and Binance founder, Changpeng Zhao (aka “CZ”), has subverted the company’s own compliance rules by secretly allowing U.S. customers to trade on the Binance.com platform. Unlike Coinbase, Binance is not open to American retail investors here. Domestic users need to hop on Binance.US, which the SEC says is really Binance, minus the dot-U.S. extension.

The SEC alleges that CZ and Binance said Binance.US was an independent trading platform for U.S. investors, but the SEC is saying Binance is the actual operator.

The Commodities Futures and Trading Commission had already sued CZ and Binance in March. This is like a woodpecker slowly pecking away at a tree limb. Will it fall? Nobody knows. But the consensus is that cryptocurrencies survive even if Binance platforms are outlawed in the United States.

“This to me looks like nothing more than market manipulation, like the ban on cryptocurrencies in China in the past market cycles,” says Boris Povar, General Director of EYWA, a cross-chain solution bridging blockchains together out of Antalya, Turkey. “Even if Binance.US closes, it won’t close Binance. This will accelerate Binance’s transition to a fully decentralized structure, which it has been doing for a long time, since the establishment of Binance DEX on the BNB
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Beacon Chain and launching of the BNB Smart Chain, plus investing in infrastructure projects such as Trust Wallet, Injective
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Protocol and others,” he says in Binance’s defense. “That is the future pillar of a decentralized Binance. It will gradually be reborn as a decentralized exchange (DEX) and will become stronger, I think. Any closure of the American market for Binance will lead them to develop other markets in Asia and even France.” Povar says he uses Binance and has had no problems with the platform overseas since the legal case was brought this month.

Binance Out in Belgium, Austria, More

Binance is taking a hit, overall.

It boasts of having a trading volume as high as $65 billion a day on average. To put that into perspective, the Hong Kong Stock Exchange had $21.8 billion in daily transactional volume recorded on May 31, one of its biggest trading days all year.

Trades are shrinking even as bitcoin has breached the psychologically important $30,000 mark recently. That would suggest more interest in bitcoin, the lead steer in crypto trading, but Binance has slipped.

On June 26, Binance’s 24-hour trading volume was under $9 billion, according to CoinMarketCap.

Their daily market share is around 47%. They used to account for more than half of all cryptocurrency trades. Bloomberg reported that pressure on their market share will be felt further once traditional Wall Street firms like BlackRock
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start opening up exchange businesses, something the SEC might prefer as the regulator wants the crypto investment market to look exactly like the traditional securities market. In that case, exchanges cannot take fees and profit from trades, just as the NYSE is not a trading platform. This may be the simplest problem facing crypto exchanges, based on the SEC’s lawsuit against Coinbase.

Last week, Belgium’s securities regulator – The Financial Services and Markets Authority – ordered Binance to cease offering crypto trades in the country.

Binance pulled its license application with Austria, and did not get approval in the UK, the Netherlands and even Cyprus, not exactly known as a “know your customer” country. (Cyprus is a known Russian money laundering island off of Turkey.)

Many crypto exchange operators have been saying that Coinbase and now Binance are right – the SEC doesn’t have clear rules in place for cryptocurrency exchanges to flourish. They say these exchanges will move elsewhere, including Europe.

“The entire crypto industry has been increasingly vocal about the lack of transparency in the regulatory approach from the U.S.,” Hedi Navazan, Head of Compliance and Regulatory Affairs at Crystal Blockchain based in Amsterdam. “Crypto businesses are moving offshore to countries that are pursuing innovation in regulation,” she said, mentioning Hong Kong and the United Arab Emirates – though Hong Kong comes with its own set of risks as Beijing exerts much more legal control over the autonomous region of China. She also mentioned the EU’s Market in Crypto Assets law.

But with Binance being asked to leave Belgium now, and pulling its license application in Austria, either Binance does not want to play by Europe’s rules, or the rules are unclear.

Navazan says she thinks the EU “stands firmly” behind delivering clear rules to the industry in order to attract global crypto companies there.

Binance’s fairly illustrious global advisory board has been unable to lobby successfully, at least not yet, and CZs behalf.

This board includes former U.S. Ambassador to China, Max Baucus; Head of the French Treasury and President of the Paris Club, Bruno Bezard; Obama presidential campaign advisor, David Plouffe; and David Wright, ex-Deputy Director General Financial Markets at the European Commission, among others.

Imagining Binance’s Worst-Case Scenario

What we have seen of late is that no matter crypto A-list shop blows up, bitcoin is holding steady and interest in the growth prospects remains high, as shown by traditional Wall Street firms wanting in on the exchange business.

Could one of them buy Coinbase? Or Binance.US? It’s possible.

But in the meantime, Binance’s woes are not seen as a blow to bitcoin, in the consensus view.

Still, the market loves doom and gloom.

“I have studied this lawsuit and the analysts’ comments on this issue well. If everything goes according to a bad scenario, Binance.US will not be allowed to exist. CZ will be strangled constantly if so,” thinks Vladislav Garmash, founder and CEO of the Marlerino Group, a Dubai-based marketing firm working with blockchain gamers and others.

Garmash has a few prognostications if Binance.US folds. First, market markers in the U.S. will vanish for Binance, which would hurt the liquidity of the exchange. Payment services for Binance International in the U.S. would be closed, tripping up people who are trying to cash out on that exchange.

“Billions of fines are waiting for CZ, including in the worst case the return of all commissions for all individuals and legal entities located in the United States, starting from 2017, plus civil penalties in the SEC case,” he says. “If Binance collapses, it is serious,” Garmash says, striking a darker tone than what I have even heard from the FTX debacle. Recall that there was talk that CZ would buy out FTX. That never happened. FTX had Tom Brady and Larry David touting its wares. It’s dead now, but cryptocurrencies are still alive.

Garmash is less optimistic if the same fate falls on CZ and Binance.

“The entire crypto market will cease to exist as it is now,” he says. “It will be a bitcoin market for geeks,” he says, though that would have to include JP Morgan, BlackRock and others on Wall Street, hardly considered tech dorks. “I hope the worst-case doesn’t happen,” Garmash says. “It will be bad for the whole market.”