Bye-Nance: The Crypto Sector's Regulatory Reckoning

Binance, the world's largest cryptocurrency exchange, has reached a landmark settlement with U.S. regulators totaling over $4 billion in fines and forfeitures. This marks the largest penalty ever levied against a crypto firm for violating sanctions and anti-money laundering laws. In this article, we are going to discuss what this means, what the impact on crypto will be, and if it is good or bad.

Binance Announcement: Reaching Resolution With U.S. Regulators | Binance Blog

Binance has reached resolutions with the U.S. Department of Justice, Commodity Futures Trading Commission, the Office of Foreign Assets Control, and the Financial Crimes Enforcement Network.

Binance Blog

Most Expensive SEC Deal in the History of Finance

In a post on the official blog of Binance, Binance states that they are pleased to have reached a resolution with several U.S. agencies related to their investigations. This means they have settled matters with the Department of Justice (DOJ).

The exchange will have to pay $1.81 billion within 15 months, and a further $2.51 billion forfeiture as part of the deal with the Justice Department, for a total of around $4 billion. The biggest plea deal to date, for and by crypto.

CEO Zhao Changpeng will personally have to pay $50 million and will be barred from all involvement with Binance, prohibiting him from "any present or future involvement in operating or managing Binance." Though that ban ends three years after the monitor is appointed, so in 2026, there is a chance he is back so to speak.

Binance’s Zhao pleads guilty, steps down to settle US illicit finance probe

Binance chief Changpeng Zhao stepped down and pleaded guilty to breaking U.S. anti-money laundering laws as part of a $4.3 billion settlement resolving a years-long probe into the world’s largest crypto exchange, prosecutors said on Tuesday.

ReutersChris Prentice

Which U.S. Laws Did Binance Violate?

Binance reportedly facilitated $900 million in transactions between U.S. and Iranian users, and supported transactions between U.S. users and entities in Syria and in the Russian-occupied Ukrainian regions of Crimea, Donetsk, and Luhansk.

The exchange was accused of accommodating criminals worldwide who used the platform to move their stolen funds and other criminal proceeds. This is typical of many crypto platforms that are used by international criminals.

Binance will plead guilty to operating an unlicensed money transmitting business, violating the Bank Secrecy Act (BSA), and conducting prohibited transactions with Iran. Binance agrees to the facts stated in the plea agreement and commits to full cooperation with the government.

In addition to failing to adhere to federal law, Binance was accused of pretending to comply, thereby incurring a total of $150 million in penalties from the Commodity Futures Trading Commission (CFTC).

Regulatory Stance of The United States of America Towards Crypto

U.S. Treasury Secretary Janet Yellen mentioned that the Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC), and the Internal Revenue Service (IRS) Criminal Investigation division have been investigating Binance for three years. It's worth noting that the exchange also remains under investigation by the Securities and Exchange Commission (SEC) on allegations of violating federal securities laws.

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The enforcement actions the U.S. government is taking against crypto exchanges are supposedly, not meant to end cryptocurrency activities, but rather to ensure compliance with U.S. law, as stated in the video below.

Possible Bankrun on Binance

Despite around $1.7 billion (and counting) in value leaving Binance holdings amid the company's settlement with US regulators and founder Changpeng Zhao stepping down, the exchange's outflows have stabilized according to blockchain analytics firm Nansen. So the rapid outflows of capital as seen during the FTX bank run are not comparable.

According to DeFiLlama data, Binance has had a net outflow of approximately $1.22 billion in assets in the past 7 days across the Ethereum, Binance Smart Chain, Avalanche, Fantom, and Polygon networks. If we look at other exchanges, we see large inflows for runner up exchanges such as OKX, Bybit, and Bitstamp.

Possible Upsides of Binance Plea Deal

Increased Market Stability and Investor Confidence

Many observers view the settlement as a positive development. The looming legal challenges are finally being resolved once and for all. By this settlement there is more clarity and less risk for the wider crypto market, some dare to say.

With CZ and Binance being held accountable for their actions that were sometimes on the fringes, it can be seen as a total cleansing and removal of 2021 showrunners such as SBF, Do Kwon, Sun Zhu and Alex Mashinsky. According to some, this changing of frontmen could increase accountability and institutional and investor trust.

Regulatory Compliance and Industry Maturation

The settlement may also signal greater regulatory compliance within the wider cryptocurrency industry. Many crypto exchanges like Binance face similar legal challenges and are anxiously awaiting their time in the spotlight of regulators. New exchanges can do nothing else than ensure their business is in order. It can be seen as a move forward and potentially legitimizing the industry and opening the gate for more optimism in the markets.

Systemic Risk Reduction

The settlement reduces the risk of a sudden collapse of one of the largest crypto exchanges, which could have had systemic implications for the crypto market. Many in crypto see the resolution as a positive step, removing uncertainty and systemic risk associated with Binance. DeFiance Capital's Arthur Cheong called it an "orderly resolution" that is "very bullish" for crypto. Galaxy Digital's Mike Novogratz agreed it could be "super bullish" if reports of a settlement were true.

What Are the Potential Downsides of the Binance Plea Deal?

Internal Instability

The settlement could bring about significant operational and leadership challenges for Binance. Some Binance employees have reported a "general sense of doom" as they are concerned about potential criminal charges looming.

Also, who will take over with Binance leaving a vacuum? Some speculate that the departure of CZ could mean traditional financial firms like BlackRock would absorb crypto and lead the way from now on - big bankers and the establishment gaining control over an anti-establishment movement.

Financial and Reputational Burdens

The largest settlement amount in history will be more than a blip in Binance's balance sheet, but it will still be a significant financial blow. It remains to be seen how this may hurt the exchange’s reputation and confidence in the crypto market. Regarding market dominance of crypto exchanges, Binance may initially lose some of its user base to comply with regulations, which may complicate the onboarding process.

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New CEO Announced

CZ published an article stating that he has resigned as CEO of Binance and Richard Teng will serve as the new CEO, who formerly oversaw Binance’s regional business operations outside the U.S. CZ stated that he may make some investments and research DeFi; he is proud to point out that Binance has not been accused of misappropriating any user funds or participating in any market manipulation, as was the case with FTX and Alameda Research.

New CEO Teng has extensive regulatory experience and worked for 13 years at the Monetary Authority of Singapore, the finance watchdog, with roles including director of corporate finance, according to his LinkedIn page.

Conclusion

The Binance settlement with U.S. regulators for over $4 billion represents a major shift towards compliance and accountability in the cryptocurrency industry. While these monumental penalties and leadership changes definitely test the resilience of the crypto industry, all seems to go well. Is this a mere blip in the inevitable fate of crypto? Or is it the beginning of the end of crypto as the anti-establishment movement?

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