What lies ahead for Binance and CZ? Experts assess the exchange’s prospects after deal with U.S. authorities

In the United States, tensions between regulators and the cryptocurrency exchange Binance have intensified. On 21 November the company agreed to pay multi-million-dollar fines to the FinCEN and the OFAC, Changpeng Zhao stepped down as CEO and posted a $175 million bail to remain free.

The U.S. Department of Justice intends to draft an indictment against the exchange, but will not pursue criminal prosecution so long as it complies with the stipulated conditions.

Given the scale of Binance’s operations, the outcome of the proceedings will undoubtedly affect the entire crypto industry. ForkLog discussed the situation with experts.

What happens to Binance and the industry?

CZ’s departure will not have a material impact on Binance’s operations, as it was not he but the senior management that ran day-to-day processes, according to Nikita Zuborev, an analyst with the BestChange aggregator.

At the same time, the leadership change and the ongoing investigation could complicate the policy the exchange applies to its customers, in order to better align with the requirements of American authorities.

«But it’s worth remembering that to ensure greater stability the company had already been split into a global and an American subsidiary. Therefore, tightening rules for American citizens should not affect all users without exception», — noted Zuborev.

According to Anton Toropcev, regional director of the CommEX exchange in the Russia and CIS, the out-of-court settlement of the conflict is broadly positive news for the industry — for institutional investors it signals regulators’ readiness to negotiate with crypto companies and movement toward approving Bitcoin-ETF.

«However, it is not clear how the SEC will behave toward other global exchanges. I think one should expect the situation to worsen in terms of scrutiny and pressure from the United States», — noted Toropcev.

Because Binance is the largest player in the market of CEX, this case will be a benchmark for other participants in the crypto market. They will have to reckon with American law, even if they are registered in other jurisdictions, argues Evgeny Kitkin, chief executive of the EMCD mining pool.

«There are risks for all crypto exchanges regardless of where they are registered or their target audience», the expert believes.

Overall, Kitkin believes the deal with the authorities will be a “green light” for the industry, paving the way for clearer regulation, influx of large capital, faster mass adoption of cryptocurrencies, and the next bull market.

In turn, Nikita Vassev, development head at 0xprocessing.com, argues that the era of Binance’s rise and growth has come to an end. And this will directly affect how customers behave on the platform.

How will this affect Binance users?

Vassev predicts the exchange will face capital outflows and account closures.

«Of course, not all users will take this path, but many will choose it. Some users will move to other trading venues. Many will see this as a threat and shift to DEX. But the majority of retail investors and traders will stay on CEX», — explained him.

According to Toropcev, a decisive factor may be that during the investigation the U.S. Treasury will have access to the platform’s data and systems, excluding Binance.US.

«A certain level of client and fund outflow is certainly to be expected. But monitoring must be directed solely at compliance with U.S. AML and sanctions requirements, so ordinary users should not have much to worry about», — noted he.

Nikita Zuborev also believes it is unlikely that there will be full disclosure of clients’ information by the global platform to U.S. authorities — such cases are likely to be isolated.

«It is quite expected that procedures to ensure compliance with U.S. AML legislation and sanctions policies will be tightened. In particular, the CommEX platform was created with the transfer of all Russian citizens there. Against this background, many businesspeople may consider reallocating their capital», — noted the analyst.

Zuborev is confident that all of this is unlikely to shake Binance’s position in the global ranking, though he stopped short of predicting effects on the company’s image.

«The deal with the U.S. DOJ in the context of closing the investigations is a positive moment, but the fact that investigations exist, given the CEO’s resignation, may be perceived by the broad public as negative», — added him.

Will CZ be jailed?

Changpeng Zhao is a somewhat controversial figure; his resignation comes as part of a carefully negotiated settlement to resolve the charges. Zuborev suggests that the DOJ–Binance agreement includes waiving further investigations against CZ over the episodes under review.

«Of course, this is not a full and absolute immunity from criminal prosecution, but to open a new case against a person who has resigned and paid billions in fines, there must be very serious grounds not anticipated in the near future. Otherwise, these episodes would have been used as leverage against the exchange», — explained the expert.

Anton Toropcev reminded that Zhao potentially faced 18 months in U.S. custody. Zhao’s further fate, he said, will depend on the presence or absence of new evidence in the case that the SEC or the U.S. DOJ might uncover.

Sergey Mendeleev, CEO of Indefibank, says the likelihood of the former Binance chief’s imprisonment is zero:

«It is quite clear that they struck a deal, and the record $4 billion fine certainly includes no problems for Zhao. It is clear that the fine was paid with client funds, but for such a giant it is still not a critical amount».

At the same time, the expert stressed that for all other market participants “the carnival is only beginning.”

As noted on 21 November, in the course of the deal with the U.S. DOJ, Binance agreed to pay fines totaling $4.3 billion amid ongoing investigations by the agency and the SEC into the exchange and CZ.

He personally paid $50 million. He also agreed to step down as Binance CEO, admitting to violations of U.S. anti-money laundering requirements. His place was taken by the head of regional markets Richard Teng.

Subsequently, it became known that Zhao was released from custody on bail of $175 million.

Under the agreement with FinCEN, the exchange will make a “full exit” from the United States and appoint an observer for five years who will oversee its internal sanctions compliance program.