There were several notable digital asset and blockchain-focused developments that were announced this past week, including Republic choosing Avalanche for its profit-sharing investment Note.
This week also saw crypto exchange Kraken being sued by the US Securities and Exchange Commission (SEC) for allegedly failing to register as a firm offering securities.
However, the most noteworthy announcement this week came when Binance agreed to pay a massive $4.3 billion to reach a settlement with US regulatory authorities.
As noted by the Talos team, Binance’s settlement charts a new course for the crypto space. Just as the optimistic momentum from ETF prospects began to slow down and the digital currency markets sought a new direction, news surfaced about Binance finally reaching a settlement regarding its unprecedented US criminal case.
Understandably, this major development was followed by a market sell-off as an immediate response, resulting in 24-hr liquidations of cryptocurrency perpetual future contracts across exchanges totaling more than $227 million.
The Talos team pointed out in their extensive update that leveraged long positions felt the majority of the impact. As per DeFiLlama data, at the time of writing, Binance experienced a net outflow of about $1 billion in total assets within the past 24 hours.
Meanwhile, OKX reported a net inflow of $152 million during the same timeframe. Despite the significant outflow of funds, Binance continues to hold the largest digital assets at present, totaling more than $67.6 billion.
Binance, which remains the world’s largest cryptocurrency exchange, has faced serious criminal charges related to alleged sanctions violations and breaches of money-transmitting laws.
The leading virtual currency exchange agreed to pay a huge settlement of $4.3 billion, marking one of the largest penalties obtained by US authorities from a corporate defendant.
Changpeng “CZ” Zhao, the founder of Binance, has pleaded guilty to charges in Seattle. The former CEO of the firm has also agreed to pay a considerable $50 million fine. And as part of the settlement, CZ will step down from the CEO role.
The new CEO of the company is Richard Teng, a former Abu Dhabi regulator who had served as Binance’s regional markets head. In addition to these management changes, Binance is now expected to follow through with a “complete exit” from the US markets under its agreement with FinCEN.
In order to ensure compliance, a monitor is to be appointed for 5 years in order to oversee Binance’s sanctions compliance efforts, and the US Treasury Department is to have access to Binance’s records as well as systems during this time period.
Although the immediate crypto price fluctuations seemed to be negative, this landmark event holds the potential to bring a positive shift to the industry, according to an analysis by Talos.
Since March of this year, the US criminal case against Binance has been a major overhang for the nascent cryptocurrency space.
Resolution via the settlement provides more clarity and “dispels uncertainty” associated with Binance’s legal proceedings, Talos noted.
They added that Binance’s consistent publication of proof of reserves over the past year “suggests a lack of major concerns with customer holdings, underlining the capacity to navigate a substantial fine.”
According to Talos, this process “not only positions Binance to fortify its compliance standards to the highest levels but also serves as an impetus for other major crypto exchanges to enhance their compliance measures, contributing to the establishment of robust industry-wide standards.”
As widely reported, Binance and its CEO Changpeng Zhao (CZ) were charged with and pled guilty to a number of criminal charges from the US Department of Justice. As covered, the organization settled civil charges from the US Department of Treasury (FinCEN) and the Commodity Futures and Trading Commission (CFTC).
According to the NYDIG Research team, the deal and charges are “the culmination of years of investigatory work by law enforcement and regulators, with implications for the broader crypto markets.”
NYDIG added that “optimistically, this can be viewed as a removal of a long-standing overhang on the industry, one that kept many investors at bay.”
They pointed out that the flip side is “that because Binance had such a dominant share of trading in spot and futures, liquidity, which has been an increasing concern throughout the year, will likely suffer.”
This probably isn’t an issue “for the major digital assets like bitcoin but may present a bigger challenge for small and illiquid altcoins where Binance accounted for the lion’s share of trading,” the NYDIG team noted.
Interestingly, the settlement included criminal charges from the DOJ and civil charges from FinCEN (Treasury) and the CFTC. But notably absent was any settlement of civil charges leveled by the SEC. As a reminder, the CFTC had filed charges against Binance and CZ on March 27, 2023, and while the two financial regulators often work cooperatively on large enforcement cases like this one, the SEC did not file civil charges against Binance and CZ until June 5th, 2023.
Although we don’t know the reason for the the SEC’s absence in the settlement, it could be that CZ and Binance have “decided to fight the securities charges, employing similar arguments regarding the scope of the SEC’s authority over secondary trading of token as those being made by Coinbase and Ripple in their cases with the SEC,” the NYDIG team added.
As noted by the researchers, Binance has been the “800 lbs. gorilla” in both spot and derivatives trading markets ever since rising to prominence in the 2017 cycle.
However, as of late, its share of trading volume has been on the decline, “making yesterday’s news less impactful than it once might have been.”
NYDIG researchers also mentioned in a note that Binance’s share of spot trading has “fallen from over 62% earlier in the year to just over 37%.”
Its leading position in open interest on futures products was leapfrogged “by the CME, however, trading of futures on Binance remains multiples of the those on the CME.”
Had this enforcement action come earlier in the year, it is “likely that its impact on the market would have been even more significant,” according to NYDIG’s analysis and estimates.
As most industry participants would agree, Binance made its name as being one of the most aggressive platforms “for the listing and trading of altcoins, so the news is likely more impactful on low market cap and liquidity tokens and less likely impactful on bitcoin trading.”
The NYDIG team further noted that Binance does have a variety of zero-fee trading programs “to incentivize bitcoin trading, but we saw no actions on the programs in conjunction with yesterday’s news.”
Presently, the most popular bitcoin trading pair “on the platform ($2B of daily volume), BTC/FDUSD, has zero taker fees.”
The NYDIG team concluded:
“Yesterday’s Binance news resolves a long-standing overhang on the industry, one that has kept many investors at bay. While Binance has done much to promote digital asset across the world, that does not give it a pass to shirk US laws and regulations. Major asset trading markets like bitcoin will likely not be as affected by Binance’s reduced stature, but trading in altcoins, where Binance thrived, might be more impacted. Ultimately, we see this as good long-term news for investors, who can be more assured of the safety and soundness of digital asset markets, as well as compliance with US laws and regulations.”