Regulators Going After Binance: Real Threat For The Crypto Industry or Just FUD?

Regulators Going After Binance: Real Threat For The Crypto Industry or Just FUD?

Binance, the world’s largest cryptocurrency exchange by trading volume for recent years, has faced lots of scrutiny from various watchdogs lately.

Keeping in mind that it’s one of the most important companies in the crypto industry, as of today, it’s worth exploring what could be the impact of this threat for the entire industry, or whether it’s just a temporary FUD.

The Growing List of Regulators After Binance

Founded in 2017 following a successful $15-million ICO, Binance exchange quickly rose to fame by attracting a massive market share in terms of spot, and later, derivatives trading volume. With the impressive growth, though, came the attention from global regulators, some of which have issued warnings or officially taken actions against the exchange.

The situation escalated recently with the United Kingdom’s Financial Conduct Authority (FCA) leading the pack. The watchdog issued a warning to Binance Markets Limited and the Binance Group, indicating that they could not operate in the country.

Shortly after, though, the popular exchange responded by highlighting that “BML is a separate legal entity and does not offer any products or services via the website.” Basically, nothing had changed, the company said.

The UK’s FCA

Despite the firm’s reassurance, though, more watchdogs joined the trend. Japan was among the first, Singapore followed, and during the first day of July, Cayman Islands joined the list – stating that “Binance is not authorized to operate in the islands.”

Just a day later, on July 2nd, 2021, Thailand’s SEC took it a step further. Instead of just issuing a warning, the regulator filed a criminal complaint against the exchange for operating a digital asset business without a license.

Real Threat or Just FUD?

Having multiple watchdogs going after you sounds like a major hurdle. The exchange faces extreme scrutiny amid the 2020 – 2021 bull market that saw prices within the entire space skyrocketing by triple-digit percentages in months. However, such claims against one of the largest companies in the business could bring it all to a halt.

According to industry analyst Adam Cochran, all of these developments don’t seem like coordinated attacks.

Instead, Cochran outlined a few more plausible scenarios. In the first one, he points out that a larger nation might be trying to build a case and has “called in favors” from other regulators. On the other, there’s a collaboration to some extent to go after a criminal organization that used Binance.


Nevertheless, the analyst wrote the exchange’s rapid expansion was its “only fault.” Now, the company will have to work with all regulators as it has entered a gray zone.

Jake Chervinsky, an influential lawyer focused on the crypto industry, commented that mass cooperation from watchdogs is possible in this case, especially given the size and exposure of Binance.

Whether it’s a real threat or a FUD, the short history of crypto teaches us that anything against the ultimate leader of the industry might result in serious consequences for the whole ecosystem that is likely to severely affect the price of bitcoin in the short term.

Binance and MT.Gox’ 2014: One Exchange Takes It All

Binance, by far, is a leader in this industry: it has an investment arm, a launchpad for newly launched tokens, it also accounts for the fourth-largest cryptocurrency by market cap – the Binance Coin (BNB) – with a current market cap of almost $50 billion as of writing these lines.

Binance FIAT-to-crypto gateway is the starting point for many new traders and investors who buy their first-ever cryptocurrencies. According to CoinGecko, the daily traded volume is by far leading the other spot exchanges. For instance, on the day of this report, Coinbase – the second on the list, accounts only for 10% of the daily traded volume on Binance Spot Exchange.

In its short history, the crypto industry has seen a similar (but different) development where one exchange controlled the vast majority of the traded bitcoin and cryptocurrencies. This was back in 2013 – 2014: a notable company received a massive blow, which affected the entire market. Mt. Gox stands out.

The infamous attack against the platform, in which hackers accessed and stole more than 700,000 bitcoins from the exchange’s wallets and 100,000 coins from the company, took place in early 2014. With today’s prices, these numbers have a USD value of roughly $3.4 billion.

The effect of the MT.Gox collapse was devastating. Somewhat expectedly, prices in the crypto market tumbled immediately after the event. They plummeted after other hacks as well, but, ultimately, Bitcoin and the industry prevailed, even if some of the exchanges were no more.

Looking at the price chart, BTC recorded its Nov-2013 previous all-time high of over $1150, however, following the MT.Gox collapse, Bitcoin plunged below $400 just three months later.

Of course, things have changed since then. Despite that both MT.Gox and Binance control the majority of the crypto trading markets, today there are legitimate alternatives, especially for FIAT – crypto gateways. To mention a few, there are the US-based regulated exchanges Kraken and Coinbase, as well as EU-based Bitstamp.

On the other hand, the altcoin markets might face huge trouble in case any legal action is taken against Binance, due to the fact that Binance is specialized in altcoins trading markets (crypto-to-crypto).

If history is any indicator, the crypto space should persist over the mid and long term, even if the pressure on Binance is so violent that the exchange succumbs to the regulatory scrutiny and there could be an immediate price effect over the short-term.

Binance CEO Chaingpeng Zhao. Source: Medium

CZ: Ignore The FUD

The CEO of Binance, Changpeng Zhao (CZ), recently tweeted to “ignore the FUD” in response to the UK FCA claims. Later on, he sent an open letter to the community in which he compared the current developments in the cryptocurrency market with what happened over a century ago when cars started to emerge:

The adoption and development of crypto has many parallels with that of the car. When the car was first invented, there weren’t any traffic laws, traffic lights or even safety belts. Laws and guidelines were developed along the way as the cars were running on the road.

These are frameworks and laws we take for granted today that allow this powerful technology to be used widely and safely. Crypto is similar in the sense that it can be accessible for everyone, but frameworks are required to prevent misuse and bad actors.

Binance Spokesperson: Haven’t Always Got Everything Right

CryptoPotato also reached out to Binance for a response to the above claims.

“Binance’s focus has always been on putting users first and protecting their interests, whether that’s through SAFE or in our work to help law enforcement agencies clean up the industry by helping to take down bad actors.” as we have been told by Binance’s spokesperson.

Furthermore, the spokesperson outlined the exchange’s efforts to enhance its compliance team, including the most recent hiring. As reported earlier, former eToro’s Jonathan Farnell joined as the new Director of Compliance.

Additionally, the spokesperson admitted that Binance may have made mistake on the way, but asserted that the company is doing its best to improve.

“We have grown very quickly and haven’t always got everything exactly right, but we are learning and improving every day. We are continuing to increase investment in our compliance program, engaging with our third-party compliance partners, and working to improve our proprietary KYC and AML technology to further strengthen our compliance standards.”

editorial staff

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