I suppose many of you saw the news about CZ, some of you might even feel uneasy that your $24.76 balance on Binance might be ‘in jeopardy’ now. This is life, and it is full of surprises, good and bad ones. The changes are coming when you least expect them. So what do we have at the moment? CZ-less Binance that has to pay some fines, and start playing by the rules. Could they manage it, or will they go ‘belly up’ in the next half a year? Let’s try on a hat of the analytic once more and think about the whole shebang.
The One Who CZs The Bigger Picture – Wins
Here’s a rundown of facts for you, dear readers.
Binance CEO Changpeng Zhao admitted his guilt in transforming Binance into a company that operated without the necessary license, and did not adhere to any regulations regarding money laundering, compliance, etc. Basically, they did what they wanted to do.
Now they raise their hands and agree to pay over 4 billion dollars in fines. Changpeng Zhao himself will personally pay 50 million. The deal allows him to retain majority ownership but prohibits him from having an executive role at Binance.
Is 4 billion a significant sum of money for Binance? Some call this number ‘a slap on the wrist’ and others confidently claim it to be ‘astronomical’. The truth lies somewhere in between.
According to the US Department of Justice, Binance’s estimated income from US clients stands at $1.35 billion per year. A 4.3 billion fine is equivalent to three years of Binance’s income from all US clients. A substantial amount, however you look at it. Considering that the US market is one of the largest for Binance, it’s not very pleasant for the company. But it is also not deadly.
As part of the agreement, Binance also agreed to allocate $1.8 billion to strengthen internal controls to comply with all requirements for compliance, regulations, checks, and other AML activities. The $1.8 billion reform tells us that there’s essentially nothing in place as it is, and everything will have to be built from scratch.
Independent monitoring with quasi-dictatorial powers will also be added to Binance’s management. These are not government officials but professionals hired by Binance, the US Treasury itself will separately oversee the monitors to ensure they are not influenced by Binance.
If the watchguards catch any crimes not covered by the Binance agreement, they must report it.
Binance Has Plenty of Skeletons In The Closet
And now those skeletons throw a ‘coming out’ party!
Binance, as pretty much every other popular crypto exchange, is swimming in ‘dirty money’. Here’s the list of crimes and violations that got them on the ‘Naughty List’ officially:
- Efforts to engage US clients in activities that circumvent US law, mainly tax evasion.
- Binance’s connection to Hamas, IRGC, Al-Qaeda, and ISIS.
- Binance’s connection to CP distributors.
- Violations of the general sanctions imposed on Iran.
- Violations of sanctions on the Russian-occupied territories in Ukraine, as well as in Syria.
- Binance was also used to withdraw money from ransomware programs, including those developed by hackers from North Korea.
Many describe this deal as a path that opens up great prospects for the crypto exchange. The prospects may indeed be good, but there is a caveat. The U.S. government explicitly states that Binance will not be able to operate as it did before, it would HAVE TO change their ways.
“Today’s historic penalties and monitoring to ensure compliance with U.S. law and regulations mark a milestone for the virtual currency industry. Any institution, wherever located, that wants to reap the benefits of the U.S. financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime or face the consequences.”
These words belong to Janet Yellen, 78th United States secretary of the treasury.
She knows that the main advantage of the US financial system is the US dollar itself and its payment systems. Anywhere Binance touches the dollar, they risk facing consequences. Binance must comply with all the requirements that the US government and its regulators impose on exchanges and banks.
Drug traffickers, hackers, scammers, illegal gambling services, terrorists, corrupt officials, crime syndicates and the mafia, and everything else that annually runs tens of billions of dollars through Binance will surely take a hit or ‘migrate’. Of course, criminals can scam banks, and it will take a couple more years to build that control system. But still, it won’t be the same now.
What will be with Binance though, is a different question…
What’s Next For The Largest Cryptocurrency Exchange Right Now?
Here’s the real scoop, even three of them. The good, the bad and the ugly, perhaps?
First of all, let’s be clear – we are not talking about the “death of crypto“, crypto will exist precisely because of certain conditions created in the international financial market. The current situation only adds to the advantages of crypto, because the regulations are increasing.
The US is only trying to divide the market into ‘squeaky clean’ players and ‘everyone else’ at this stage. After the pool of ‘clean players’ is created and the rules of their functioning are worked out, the US will start beating all the other players over the head so that they follow suit or just die off.
And that’s exactly what will happen to Binance. They’ll either turn ‘good’ or CZ to exist.
BEST CASE SCENARIO FOR BINANCE
Binance’s business model can be easily rebuilt into a regular exchange due to its large customer base and safety margin.
It is not difficult to hire people from the market, there are plenty of professionals who know how to build a white business. As a result, Binance will have a huge capitalization but a small income for a crypto market. They will lose some customers, but get a lot of new ones, crawl out of the gutter into the spotlight, partner with someone big, and everything will be fine.
This will probably suit CZ quite well, because in this case he can sell his stake for a hefty amount in the future and generally be a regular billionaire with ‘clean money’.
WORST CASE SCENARIO FOR BINANCE
Following the audits and strict monitoring it will become apparent that Binance’s business model would not allow for the exchange to be rebuilt. It’s an unlikely development, but stranger things have happened before.
As soon as Binance will find and deploy their ‘prison guards’, the criminal sector will move somewhere else. Perhaps the audit will reveal something nasty, new crimes that CZ won’t be able to negotiate with. Add to that some side investigations, IRS joining the party, as they are very interested in US citizens who try to hide their money. You add all these things to the mix, and Binance loses a lot of its so-called ‘appeal’, because nobody likes regulations, not the criminals, not the normal citizens.
Could the new management fight through all these obstacles, filling the big shoes of CZ, or will they realize that the legal way is too hard?
MOST LIKELY SCENARIO FOR BINANCE
The client base and business of Binance itself has a huge value for traditional financial players.
It is possible that Binance (or its America
n subsidiary, at least) will be bought almost immediately after the first audit, when it becomes clear what exactly you are buying with Binance. This could lead to the creation of a new Binance, one that would try to wash away the sins of its predecessor, step out of the shadows and turn into something ‘normal’. This has the highest probability, as only something inside the company itself can prevent the transformation.
The US tax authorities will have access to Binance soon, and then all the tax authorities of other developed countries. Similarly, compliance will be brought up to par. Whatever happens next will not lead to the destruction of crypto as a phenomenon. The market will simply be changed into something new. But sure enough, this is not the end of the story. This is just the beginning. How does the ETF fall into this occasion? Heck, that might be a topic for another story.
We need to end this article with some lessons. Some people advise to treat all exchanges like a public bathroom – go in, do your business, and get out ASAP. I agree with the sentiment, and would like to add that you can sit for hours on your porcelain throne back at home, it’s safer there.
Expect the next chapter of spicy Binance lore to drop after the appointment of supervisors and actual audits. Until then, don’t go changing!