Binance's expensive deal with U.S. prosecutors this week bears harsh consequences but could leave the world's largest crypto exchange with a brighter outlook going forward.
After a months-long investigation by the U.S. Department of Justice, co-founder and CEO Changpeng "CZ" Zhao on Tuesday pleaded guilty to violating federal crimes and Binance cut a check worth $4 billion to U.S. lawmakers. CZ, who until Tuesday was one of the most powerful people in the crypto industry, agreed to step down.
All this might sound like a pretty bad outcome for the Hong Kong-based exchange, but it’s also an opportunity for a fresh start – possibly the best-case scenario for Binance, which had been haunted by market fears that U.S. authorities might deal a devastating blow.
“The settlement was the only option to continue the business,” said Ethan Silver, partner at law firm Lowenstein Sandler who co-chairs the firm’s crypto practice. “Presumably, they think the business will be able to be cleaned up and operate on a compliant basis going forward with a great opportunity to continue its significant monetization.”
For years, industry participants had accused Binance of cutting corners on regulatory matters or of various misdeeds, to the point where CZ established a way to refute rumors – by posting the number 4 on his social media. He said it stood for “Ignore FUD,” an expression in the industry used to describe when somebody spreads negative feelings about something – “fake news, attacks, etc.”
The company was also routinely skewered for what seemed like an ever-shifting account of the location of its corporate headquarters.
A criminal investigation as such could have had fatal consequences as seen in the case of collapsed crypto exchange FTX, which will likely result in the founder and former CEO Sam Bankman-Fried going to prison for the rest of his life.
That episode sparked concerns that U.S. charges against Binance might trigger a deposit run, a potentially difficult-to-reverse downward spiral as users scrambled for the exit.
So Binance’s deal with the DOJ – with no imminent signs of depositor flight or other distress – might be seen as a positive outcome, not just for CZ’s prospects for avoiding a lengthy prison sentence, but for the exchange’s business. (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.)
“Optimistically, this can be viewed as a removal of a long-standing overhang on the industry, one that kept many investors at bay,” Greg Cipolaro, global head of research at NYDIG wrote in a note.
The change in management, namely appointing Richard Teng, who formerly oversaw Binance’s regional business operations outside the U.S., as the new CEO, could help to turn the page.
Rajeev Bamra, head of DeFi and digital-assets strategy at Moody’s Investors Service, praised Teng’s extensive regulatory background and experience, in an emailed statement from the credit-rating firm. Teng's stepping in as the new leader of the exchange could provide an opportunity to move beyond regulatory concerns and “chart a path towards stability and a fresh beginning,” according to Bamra.
In the short term, Binance will likely lose some of its market share as a consequence of its compliance with regulators, Danny Lim, core contributer at MarginX, a perpetual decentralized exchange (DEX) said. Longer term, it could regain market dominance.
BNB token price
Binance has already taken hits in popularity this year, and even the market's reaction – or lack thereof – shows that this settlement isn't as big of a deal in the eyes of traders.
After a flurry of trading over the past couple days, the BNB (BNB) token, closely associated with Binance and its various sponsored blockchain networks, appears to have stabilized after and initial sell-off and is now holding at levels roughly where it has traded for the past few months – certainly no meltdown. BNB has a market capitalization is about $36 billion, ranking the token as the world's fourth-biggest digital asset.
Most recently, Binance was surpassed by regulated futures exchange Chicago Mercantile Exchange (CME) as the leader in open interest on futures products.
But that flip might have been partly due to the clouds from the investigation – some of them now lifted.
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