Binance Fights ‘FTX Redux’ Fears As Regulators Blast Crypto Giant

Binance Fights ‘FTX Redux’ Fears As Regulators Blast Crypto Giant

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  • Binance is being blown up from all angles as US regulators close in on the world’s largest crypto exchange.
  • The SEC believes it operates unregistered securities, while some reports suggest that Binance has engaged in clandestine money transfers.
  • Here’s what’s going on with Binance, and where the company is under pressure.

Binance, the world’s largest cryptocurrency exchange, is braving one of the toughest updates since it was founded by Changpeng Zhao and He Yi in 2017.

The digital asset giant is fighting on multiple fronts at the same time, facing a series of US regulatory probes as it tries to shore up investor confidence damaged by the so-called crypto winter and a series of high-profile bankruptcies and industry scandals.

After the shocking implosion of Sam-Bankman Fried’s FTX late last year, concerns have risen whether Binance faces similar risks. Type ‘Binance’ into search analytics tools like AnswerThePublic and they throw up a range of queries including “will binance collapse like FTX” and “can binance be trusted”, or even “binance is next”.

The company now faces legal and regulatory investigations over potential violations of anti-money laundering rules, and questions about whether it properly registered any crypto derivatives. The grilling comes as regulators tighten their grip on the crypto industry following FTX’s collapse.

‘FTX redux’ fear

John Reed Stark, a former attorney for the US Securities and Exchange Commission, tweeted earlier this month that Binance is “FTX redux and an epic bank run seems inevitable”.

However, experts in the crypto industry do not seem too worried about Binance’s future.

Alex Svanevik, CEO of crypto analytics firm Nansen, and Marcus Sotiriou, analyst at digital asset brokerage GlobalBlock, expressed faith in the exchange despite the latest hiccup. Tom Wan, a research analyst at 21Shares, noted that Binance has proven resilient despite regulatory crackdowns and market turmoil.

“I don’t think Binance will be the next FTX. They’ve been more transparent about customer deposits than FTX ever was,” Nansen’s Svanevik told Insider.

Both Svanevik and GlobalBlock’s Sotiriou highlighted Binance’s $65 billion in reserves as an indicator that the company is in good shape.

“I think Binance is here to stay and has assembled an empire that will be hard to disrupt,” Sotiriou said. “Despite concerns about the transparency of Binance, such as no corporate governance, no headquarters, no CFO and no recognized auditor, there is enough evidence for me to predict that they are adequately capitalized, if not 100% solvent,” he added. .

The exchange has never invested or “otherwise distributed” customer funds without their consent, a Binance spokesperson told Insider in emails.

“Binance holds all of its clients’ assets in segregated accounts that are identified separately from any accounts used to hold assets belonging to Binance. It is important to note that our users can withdraw their funds whenever they wish – as has been shown time and time again,” the spokesperson added.

“Glove for regulatory inspection”

While the exchange may not face existential threats, it is likely to remain under pressure from regulators and clients who want greater transparency, Robert Le, a cryptoanalyst at data and software firm PitchBook, told Insider.

“We believe that after FTX, the regulatory environment will be much less favorable for Binance and that they will face significant regulatory pressure across multiple jurisdictions. What this means is that the company will not only face significant financial penalties, but also the possibility of being forced to exit certain markets, restructure or completely separate their various businesses,” Le said.

Ed Moya, senior analyst at OANDA, has a similar view.

“Binance is about to undergo intense regulatory scrutiny over its finances, operations and compliance. The scrutiny will be relentless and potentially crippling for Binance. It appears that Binance will not have an easy path to operating in the US,” said he to Insider.

Binance is increasing its compliance infrastructure by investing in related technology and human resources, according to the company’s spokesperson.

Here are 5 cases where the crypto giant has come under fire from regulators or lawmakers.

A botched plan to avoid US regulators

A recent investigation by the Wall Street Journal revealed that Binance hatched a plan years ago to avoid scrutiny from US watchdogs when authorities hinted at their intention to crack down on crypto businesses based abroad.

The strategy sought to create a US entity that was completely independent of Binance’s global operations – so it set up Binance.US in 2019. Founded in 2017, had largely operated in a free-floating manner out of hubs in China and Japan – to distance it from regulatory controls.

But the plan turned out to be flawed, as the two platforms were more intertwined than publicly revealed, according to the WSJ. They mixed both employees and finances, and even shared a unit that traded cryptocurrencies.

If US authorities decide the links meant the crypto exchange had control over the US platform, it could expose the company to enforcement.

Customer funds

Binance also fends off concerns about its handling of customer funds, following some reports that it used customer funds for its own purposes such as FTX. The exchange transferred $1.8 billion in stablecoin collateral to hedge funds, leaving investors exposed, according to Forbes, which reviewed data from the chain from Aug. 17 to early December.

While the shift in funds may not be illegal, it could pose a risk to Binance’s investors. For example, Sam Bankman-Fried lost more than $8 billion in client funds after allegedly transferring FTX deposits for operations at sister trading firm Alameda.

Secret transfers

Binance secretly moved $400 million from its US partner to a company managed by the crypto giant’s boss Zhao, called Merit Peak, Reuters reported last month.

Binance claims that Merit Peak and Binance’s American partner Binance.US operate independently of the exchange.

Binance USA’s former CEO Catherine Coley called the transfers “unexpected,” according to Reuters.

Unregistered securities

Binance’s US affiliate has also come under pressure after an SEC official said the company operates unregistered securities in the US, per CoinDesk.

The allegations have raised obstacles to a $1.3 billion deal between Binance.US and embattled crypto firm Voyager, in which the former planned to pick up the latter’s assets. However, Voyager was later allowed to sell its assets to Binance in a snub to the SEC.

The SEC has cracked down on major crypto firms including Gemini, Genesis and Kraken for operating assets that have not been rubber-stamped by US regulators.


In another SEC intervention, crypto firm Paxos was ordered to stop minting Binance’s dollar-pegged token BUSD because it was considered an unregistered security.

It came after the regulator launched a lawsuit against Paxos for offering BUSD to its customers.

BUSD is the world’s third-largest stablecoin behind Tether and USD coins, with a market capitalization of more than $8.2 billion, according to CoinMarketCap.

“There are a lot of unknown unknowns to draw conclusions about Binance, but the coming months will be crucial to gain more transparency and clarity about Binance’s overall financial health in light of the recent regulatory headwinds,” 21Shares’s Wan told Insider.

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