This week, the world’s biggest cryptocurrency exchange, Binance, reached a resolution with U.S. authorities which will see it remain in business, although head honcho CZ has had to step down as CEO, plead guilty to money laundering charges and agree to pay a huge fine, in order to avoid heavy jail time. But following the shock announcement of the deal, new details and observations are coming to light.
For starters, the potential run on the exchange never happened, which suggests that users seemingly haven’t found the settlement too concerning. It would seem that the crypto community feels that a bad peace is better than a good quarrel where the authorities are concerned.
While the news did lead to an exodus of almost $3 billion worth of user funds, almost $2 billion worth of funds have flowed into the exchange, resulting in a net $1.64 billion reduction in customer holdings within 24 hours at the time of writing. This is very small compared to the exchange's total balance, so perhaps CZ’s positive statement that users’ funds “are SAFU!” and the fact that authorities have never alleged that Binance misappropriated any user funds or engaged in any market manipulation has also played its role.
The BNB price certainly reacted to the announcement, losing around 15% within one day, although it had earlier seen a significant gain, so it closed the week just $10 down from where it opened. This also suggests that the settlement is not such a crucial element in the eyes of investors and traders.
The exchange will pay the largest penalties ever received from a corporate defendant for violating U.S. law. The fine might be paid using the $3.9 billion of USDT that Binance moved from its cold to hot wallets just prior to the settlement. It is unclear whether the government is ready to accept stablecoins or if Binance would have to redeem them for U.S. dollars first.
It is possible that the expensive deal with the authorities could be the best possible outcome for Binance. The exchange can now eliminate all its compliance issues and have a fresh start, while keeping its customer base and most of what it has achieved, even if it loses some of its market share.
Bearing in mind that another prominent crypto CEO, Sam Bankman-Fried, was recently found guilty and might stay in prison for the rest of his life, CZ might have got off easy (for the time being). At least he can “enjoy all the free time he suddenly has now.”
The judge initially ruled that Zhao would be allowed to return to the UAE, where he holds citizenship, on a $175-million appearance bond. However, the following day the prosecution claimed that CZ posed a serious risk of flight, considering his substantial wealth and ties outside the country. The prosecutors urged that Zhao should remain in the country before his sentencing hearing in February 2024, claiming that the government “would not be able to secure his return” in case he decides to stay in the UAE.
As for Binance's rival exchanges, they also seem quite satisfied with the outcome. The CEO of Kraken, Binance’s main rival, said that the game “feels a bit more fair today” after the times when “the only enforcement that's happening is against the good guys.”
It should be noted that the SEC recently filed a lawsuit against Kraken, alleging failure to register as a securities exchange and unlawful commingling of funds. Brian Armstrong, the CEO of another rival Coinbase, which also faces lawsuits from the U.S. authorities, retweeted that Binance settlement is a positive thing as it “eliminates potential systemic risk from hypothetical collapse.”