Nov 22, 2023

Bitcoin (BTC) is hovering below $36,600 as Changpeng 'CZ' Zhao stepped down from his role as CEO of Binance, the world's largest crypto exchange, and pleaded guilty to violating U.S. anti-money-laundering rules.

Video transcript

Joining us now to discuss the crypto markets and the effects of finance's plea is Clara Meda from Kio. She's the director of research there, Bret Clara Mercy. Thank you. Of course. So, uh we have uh this big question, of course, is this is $4 billion. Last I checked $4.3 billion that's gonna have to come from Binance and you uh you, you tweeted out a chart yesterday. Um That looks at whether or not Binance can handle that $4 billion settlement, uh explain what's going on here. Yeah, for sure. So I think over the past year Binance has done a ton of zero fee trading promotions, right? As markets started to fall around the Celsius and Tara collapse, um It really harmed a lot of centralized exchanges, volumes were falling really quickly. Um And so yeah, so this is the market depth chart. The the zero fee chart is a bit different. Um So essentially what the zero fees showed is that at one point in 2022 more than 60% of Bin's volume on the spot exchange was zero fee, meaning they weren't, were not earning revenues um from this. Yes. So here's the correct chart you can see here in orange and light blue, these are volumes from zero fee trading pairs, whereas dark blue is all other pairs. Um And so they did this for some of their biggest pairs, like the Bitcoin tether pair and some various other Bitcoin stablecoin pairs. Um and it, it's enormous, it's a massive amount of market share. And so ultimately, the strategy was clear in order to maintain market share amid a bear market and sort of very volatile time in the industry, the idea was to launch many zero fee trading pairs, but this surely had an impact on revenues for the spot exchange. And so with a note, I just want to say they have many other revenue lines, whether that's derivatives defi um but the spot is sort of the flagship exchange. So um I'm I'm sure over the past year it has had a big impact. So I, I I've got to ask this because of course, it, it, it's a, it's a question uh that, that probably is crossing a few people's minds. It certainly crossed mine for, for quite some time, we saw this run up in, in Bitcoin for instance, and in other cryptocurrencies over the past several months and one now, now looking back on it, we'd say, well, gee Binance has been negotiating with the Feds during that entire period uh from what it seems, um Is it possible that uh some of, at least the run up in the price of Bitcoin may have been related to, uh, Binance preparing to pay such a large penalty. Is there, is there, is there a way that would have, is there a way somehow that the two are connected? Mm. It's very hard to predict. I mean, uh, like, it depends on, I think it's still unclear really the total amount that finance has. They have many billions dollars. Um, in tokens held on the exchange still, but whether that is easily convertible into something that the government would accept, um, as, as a fine. Um I'm not really sure. Yeah. Last I, last I checked, I, I think the US government does not accept those coins to pay penalty. Clara. Uh Are, are you surprised that there was hardly any market reaction to this news? I mean, to be honest, I am a bit surprised. I think, I, I think that it's outside of the crypto industry. This was viewed as a very negative event but within it actually was almost a bullish resolution to this ongoing legal battle that the exchange had um with the US regulators. And so now, like, you know, this, it's over, it seems like it's, it's ending to a conclusion which is good news for the crypto industry and we saw markets barely moved. I mean, Bitcoin is down 1% but e is actually up over for the past 24 hours and same with some alt coins. Um the largest impact we actually saw was on liquidity. So on Binance, we saw market depth fall about 25%. This is expected. I think when FTX collapsed, market makers were sort of the ones that had the largest impact, they lost a lot of money. So it's very expected during a very volatile market event on finance for market makers to pull some of their assets off of the exchange. And we saw that in the data. Yeah, I was, I was just gonna ask about market depth because obviously, if B to put in perspective is one is the largest crypto exchange, but it's also the largest uh futures exchange if you will for, for Bitcoin or at least it was until CME I think CME is now kind of close there. Uh But nonetheless, the perpetual futures allows a lot of leverage. Do you think that this ends up uh uh kind of throwing cold water on uh what was already kind of a soft market uh with the collapse of FTX? Does it, do you think that it will ultimately lower leverage still now that the biggest player in that market is uh uh has the, the, the US government uh watching its every move? Yeah, I mean, it, it certainly could. I think derivatives markets have already been a lot cooler over the past year. Open interest is relatively low compared to all time highs and we haven't actually seen much of a trend at all with Bitcoin open interest over the past few months. Whereas for Ethereum, we actually have seen an increase. Um but overall leverage is lower. And I think a couple of years ago when regulators first started cracking down on Binance, Binance actually halted some of its higher leverage offerings. I think the exchange used to offer like many crypto exchanges actually used to offer more than 100 X leverage. That is that era is almost over at this point. Um There's still a handful of derivatives exchanges that do offer this much, but it's sort of less and less. So which is good because you see less risk, the more leverage you're able to use the more risk of cascading liquidations. Um And that actually caused a lot of volatility a few years ago in the crypto industry. And we actually see lower volatility over all these days over the past year. And while it's not clear if the direct link is just because there's less leverage in derivatives markets, it's a compelling one of the compelling many reasons for why this is the case, Claire part of the settlement requires finance to exit the US over time. What do you think this means for volumes? Um So I I would say that Binance globally is, is by far the biggest exchange, they have more than 50% of market shares still. And assuming that like ever since regulators started targeting the exchange, us traders have, have almost vanished, then they still are maintaining a very healthy market share even after this. Um And whereas their US subsidiary Binance US has seen a complete sort of evaporation of trade volume. They don't even offer us dollar trading anymore. Um And so I think that Binance Global is rather insulated from this just because they've sort of adjusted over the past few months. Um But Binance Us, on the other hand is still struggling. Yeah, I mean, does this change uh ha what do you expect at least uh just based on the data that you have, what do you expect will happen going forward? I does Binance Binance will probably still, as you mentioned, take, stay in uh maybe not the line share because it's something like 20% or so. Uh but nonetheless, it's still the largest of the uh of the centralized exchanges. Do you think it'll maintain that position uh with the added amount of KYC and am L that they'll have to put in place now? Well, I think we'll always see a new competitor that offers lower Kyc. I mean, we're already seeing some exchanges like MC C is sort of a newcomer and they have this huge amount of volume because they have very little KYC. And like if there is a market for these types of platforms, the platforms will appear. And so I, I guess it's, it's too early to tell now, but I do expect that we probably would see a drop in market share. Um Should they increase sort of the restrictions when it comes to on boarding? You think we're gonna see some trad five players eat up some of that market share? Um It's a good question, I think like the US is now sort of, we've seen, we've seen all of the platforms in the US get targeted. We had cracking yesterday, we have Coinbase and now it's sort of only up from here. Hopefully in the United States, things are getting clear the amount of regulations on these exchanges. Um, it's clear what can be done and what can't anymore. Um, so it's a good market, especially for exchanges like Coinbase that have tended to always work very closely, um, with agencies.

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