Binance will remain among the largest crypto exchanges over the next two to three years; agreements with US agencies are a favourable outcome, despite the SEC not being included in them. The conclusion was reached by Matrixport.
Analysts reacted to news of the deal between the U.S. Department of Justice and the platform. Experts were surprised by how quickly decisions were made after the conclusion of the court case in the FTX/SBF.
As part of the settlement of the case Binance will carry out a “full exit” from the United States, and will also pay $3.4 billion to FinCEN and $968 million — OFAC. In addition, the founder Changpeng Zhao must personally pay a $50 million fine.
CZ admitted guilt in violating the Bank Secrecy Act on charges by the U.S. Department of Justice and agreed to step down as CEO. The court released him on bail of $175 million.
Sentencing is scheduled for February 23, 2024.
CZ agreed not to appeal if the sentence does not exceed 18 months. Zhao will be barred from running a business for three years.
The new head of Binance will be Richard Teng, the head of regional markets.
At press conference, U.S. Attorney General Merrick Garland accused the organization of feigning compliance with regulations.
Besides the Bank Secrecy Act violation, management admitted failing to register as a money-transmitter and willful violations of the International Emergency Economic Powers Act.
The exchange allowed transactions between American users and sanctioned entities. In particular, the platform’s turnover with users from Iran amounted to about $900 million.
“CZ and other executives undertook deliberate and calculated efforts to profit from the U.S. market without applying the controls required by law. Criminals around the world used Binance”, — a government official said.
CFTC Rostin Behnam noted that Zhao would have to pay a $150 million fine to the agency. Former chief compliance officer Samuel Lim agreed to the proposed consent order, under which he would pay $1.5 million in penalties.
U.S. Treasury Secretary Janet Yellen said FinCEN, OFAC and IRS had been investigating Binance for three years.
“The coercive actions the government takes against exchanges are not aimed at stopping cryptocurrency activity, but they must comply with the law”, — explained the Treasury secretary.
The new head of Binance Richard Teng emphasised the platform’s solid fundamentals.
“The company continues to run the world’s largest crypto exchange by volume, our capital structure is debt-free, expenses are modest. Despite the low fees we charge our users, we have high revenues and profits”, — he explained.
The fundamentals of our business are VERY strong.
Binance continues to operate the world’s largest crypto exchange by volume, our capital structure is debt-free, expenses are modest, and, despite the low fees we charge our users, we have robust revenues and profits. https://t.co/PHq2YS0CP5
— Richard Teng (@_RichardTeng) November 22, 2023
Matrixport noted that U.S. agencies did not accuse the platform of misappropriating user funds or manipulating the market. They did not rule out further pressure to keep its staff under 6,000 employees.
Experts noted satisfaction among crypto skeptics with the agencies’ recent actions given the bank closures in March, which facilitated fiat-to-digital-asset transfers.
“One could argue that few large players remain, and with the price of the leading cryptocurrency down only 3.4% in the last 24 hours, the market is undergoing a major event tied to reduced risk, — analysts said.
They believe that going forward more exchanges will bolster their compliance programmes and become part of a joint surveillance agreement, which will play a key role in approving the spot Bitcoin-ETF in the United States.
Analysts expect the state of the industry to shift from comparing volumes on centralized platforms CEX and DEX to activity on regulated vs. unregulated platforms.
Thanks to the deal, expectations for a spot Bitcoin ETF rose to 100% given the “need for players to follow the rules,” according to analysts. Inflows into any product listed in the United States could range from $24 billion to $50 billion, they estimated.
The “cleansing” of the industry will reinforce arguments for institutional adoption of digital gold, including as a safe-haven asset, experts said.
In this context, analysts recalled the upcoming sale of FTX, whose future management would follow U.S. securities laws.
“Institutions are appearing. All enforcement actions by American agencies are a step in this direction. As the macroeconomic environment continues to favour demand from institutions, 2024 is likely to be another spectacular year for Bitcoin — CZ may return during the next bear market in 2026”, — Matrixport concluded.
On 27 March the CFTC filed suit against Binance and Zhao, accusing them of unregistered derivatives trading, servicing U.S. citizens and Sanctioned persons, and failing to comply with anti-money-laundering rules.
On 5 June the SEC filed suit against Binance and Zhao, bringing 13 charges including the sale of unregistered securities. On 6 June the regulator filed a motion to freeze the U.S. unit’s digital assets.
On 9 June users lost the ability to deposit dollars, prompting selling by those looking to withdraw funds in fiat. As a result, the platform formed a discount in Bitcoin quotes against the dollar — the figure reached about $2,200 (7.3%).
Recall that on 17 June the SEC and Binance reached an agreement on customer funds in the United States. The exchange resumed withdrawals, but warned that the situation could still change.