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Where is crypto headed after Binance humiliation
The $4.3 billion Binance pact concluded with the American authorities this week creates new complications for the world’s largest cryptocurrency exchange. But crypto enthusiasts are breathing a sigh of relief, saying the deal removes much of the uncertainty facing their sector.
“It’s good to wake up in crypto and not worry about what’s going to happen with Binance,” Matt Hougan, chief investment officer at crypto asset manager Bitwise, said on X, formerly known under the name Twitter. “2024-2025 is going to be so awesome.”
It’s good to wake up to crypto and not worry about what’s going to happen with Binance. 2024-2025 is going to be so awesome.
– Matt Hougan (@Matt_Hougan) November 22, 2023
The settlement, JPMorgan Chase analysts added in a note, ends the “potential systemic risk emanating from a hypothetical collapse of Binance.”
Michael Safai, a partner at crypto trading firm Dexterity Capital, claimed that Binance’s resolution “signifies a path forward for crypto and confidence that the asset class will not be taxed and disappear.”
The developments in cryptocurrencies and related stocks following Binance’s announcement showed that investors largely shared this optimism.
Binance’s own crypto token, BNB (BNB-USD) fell 13% in the hours after its settlement was announced – an illustration of the many challenges that remain now that it is under stricter government oversight – but then recovered on Wednesday while the prices of other currencies have stabilized.
Bitcoin (BTC-USD), the world’s largest cryptocurrency, rose 1% in the 24 hours following Binance’s announcement, while ether, the second-largest digital currency (ETH-USD), up more than 4%.
The stock of another major crypto exchange, Coinbase (PIECE OF MONEY), also rose more than 3% on Wednesday on possible expectations that it could prove to be a beneficiary of Binance’s troubles.
The affair of the bull
The bullish argument for crypto is that the worst of its problems are now in the rearview mirror.
Bitcoin peaked at $68,789 in November 2021, but then collapsed in 2022 when the Federal Reserve began raising interest rates and a series of businesses imploded, including crypto exchange FTX in November 2022.
A widespread crackdown on the crypto industry followed. Regulators have gone after a number of big players, including Coinbase and Binance. Earlier this month a jury found FTX founder Sam Bankman-Fried guilty of defrauding customers, lenders and investors.
In this courtroom sketch, FTX founder Sam Bankman-Fried stands as the jury foreman reads the verdict in his fraud trial that ended on November 2. (Jane Rosenberg/REUTERS) (JANE ROSENBERG/Reuters)
Investors are now optimistic that the industry is poised for greater acceptance and clearer regulation from Washington. They hope the Securities and Exchange Commission will soon approve 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 (BLACK) is among the renowned fund managers 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 cash exchange-traded fund following a ruling in its favor in August by a three-judge panel of the District Court of Appeals of Columbia.
The panel concluded the SEC had been “arbitrary and capricious” when it denied the conversion request in 2022.
The next official step at which the SEC must accept or reject approval of a spot Bitcoin ETF is January 10, although the SEC may approve applications earlier.
The end of an era
Investors have some reasons to be cautious, however. The SEC still has a series of lawsuits pending against some of the biggest names in the industry, including Binance and Coinbase, as it attempts to force more players to register with the regulatory agency and file the digital assets as securities.
And the fact that Binance now has to operate under so much government control will certainly hamper what remains the largest crypto exchange in the industry.
Attorney General Merrick Garland announced the agreement with Binance during 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 mainstream and institutional players enter this space, regulations and enforcement will become stricter to ensure compliance and consumer protection. »
The Binance deal with US authorities “marks the same inflection point we saw earlier 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 transfer business, and sanctions 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 a crypto 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 his plea agreement.
Although the full terms of the deal with the United States have not yet been released, they are “likely onerous, robust and extraordinarily invasive,” John Reed Stark, a legal consultant and former SEC attorney, said on X, formerly Twitter.
What is known is that Binance must now review and report transactions worth billions of dollars that it facilitated for suspicious activity, including $898 million in transactions between US users and sanctioned users based in Iran.
The mandate also entails Binance’s full cooperation “in all matters” related to the agreement or “any other conduct under investigation by the government” during the period of the agreement.
Richard Teng, the new CEO of Binance. (Abdel Hadi Ramahi/Reuters) (Abdel Hadi Ramahi/Reuters)
It will also likely become “increasingly cumbersome, tedious and difficult” for the company, according to Stark.
Its new CEO, Richard Teng, faces many challenges in charting a new direction for the company while correcting past legal violations.
In the 24 hours following the government’s announcement, customers withdrew a net $695 million from Binance, according to data compiled by 21Shares.
This was significantly higher than Binance’s average daily withdrawals, but far from the largest since the start of 2023.
Traders view the Binance deal as “the industry finally turning a corner” and putting “an end to one of the lingering questions for crypto in 2023,” Dexterity’s Safai said.
As for the future, “prepare for a slower, more sustained pace of growth in crypto,” he added.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto and other areas of finance.
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