The problems that Binance has been having have significantly impacted the cryptocurrency market. Not only have shares in other cryptocurrency companies fallen, but the faith in several coins has been eroded because of Binances problems. The latest issue occurred in June 2023 when the Securities and Exchange Commission (SEC) sued Binance, its Chief Executive Officer, for manipulating Binance. The SEC used the term “web of Deception” to describe how Binance circumvented U.S. securities laws.
According to Reuters, Binance oversaw its U.S. affiliate bank accounts, despite stating they were independently operated. Some of the claims made by the Securities and Exchange Commission were that Binance provided false information when it inflated trading volumes on its platform and diverted customer funds. The company also failed to restrict access to its platform from U.S. investors who are forbidden to use Binance. The SEC suit is a civil chart filed in Federal Circuit Court in Washington D.C.
Who is Binances
Binance is the largest cryptocurrency exchange by volume, with a market share of more than 40% of the global cryptocurrency market.Binance was founded in 2017 by Changpeng Zhao. Binance offers variouscryptocurrency trading options and has become one of the world’s most popular exchanges. It provides users with a platform to buy, sell, and trade cryptocurrencies and various other services such as futures trading, lending, and more. Binance has expanded its services to include Binance Coin (BNB), its native cryptocurrency, and has a significant presence in the cryptocurrency industry. Many of those who initially wanted to understand how to trade cryptocurrencies flocked to new trading platforms such as Biances, which provided a marketplace and a platform to help investors transact cryptocurrencies.
Did Binance Have Permission to Have U.S. Citizens on its Trading Platform?
U.S. citizens could trade on Binance, but certain restrictions were in place. Binance has a separate platform called Binance US, specifically designed for customers in the United States. This platform complies with local regulations and offers a limited selection of cryptocurrencies compared to the global Binance platform. After the Securities and Exchange Commission charge, Binance U.S. announced it would no longer accept customer deposits using U.S. dollars on the trading platform. Banking partners of Binance were concerned after the SEC filed suit against Binance and started to shut down payment methods that were open to dollars moving on and off the Binance platform.Binance U.S. oversees $2.2 billion in cryptocurrency holdings.
The SEC Suit
The SEC is bringing a civil suit against Binance; there are no criminal charges. Civil and criminal charges are two distinct types of legal actions that can be brought against individuals or entities. While many might be familiar with the charges filed against Sam Blankman Fried, the changes against Binance and its CEO differ. The main difference lies in the offense and the potential consequences. Civil charges typically involve private disputes between individuals or organizations. The purpose of civil charges is to seek compensation or resolve a legal dispute between the parties involved. If someone is liable in a civil case, they may be ordered to pay damages or fulfill specific obligations.
On the other hand, criminal charges arise when a person is accused of committing a crime that violates society’s laws and regulations. The government generally brings criminal charges or a prosecuting authority, such as the district attorney. Criminal charges aim to punish the offender and uphold public order. If found guilty, the accused may face penalties such as fines, probation, imprisonment, or even capital punishment, depending on the severity of the offense.
Unfortunately, while no criminal charges have yet to be announced, the net is tightening on the company and management. Changpeng Zhaohas hired white-collar defense lawyers for personal representation. The United States Justice Department and the FBI are investigatingBinance for money laundering.
Binance is likely to avoid the death nail, which would be a freeze of its assets by the U.S. Department of Justice. The SEC will continue its civil suit, and the criminal investigation will continue by the Justice Department. A judge in June 2023 ruled that Binance will be able to continue to run its business while the suit and investigation are ongoing. If Binance can avoid a freeze of its assets, it can continue to run as the flow of capital will continue to fund its operation. If its assets are frozen, then it will not be able to support itself, and there will be a run on the company similar to the run experienced by FTX. What does seem clear is that not only is the company’s CEO preparing for a criminal investigation, but the firm is also on alert. With fraud allegations by the SEC and the Commodity Futures Trading Commission, the Justice Department will likely take the information gained in the civil investigation and use it in its criminal investigation.
As part of the SEC investigation, Binance and its CEO were charged with operating an unregistered exchange and broker-dealer. The company also misrepresented trading controls and oversight, and the trading platform offered unregistered securities.
Since the suit was announced, cryptocurrency traders have withdrawn about $1.4 billion from the Binance global exchange. The Binance token, used to fund the Binance business, lost 22.4% in value.
One of the issues with the BNB coin falling is that the value of Binance is declining. While the coin’s success is not tantamount to the company’s success, lenders who use the coin as collateral will point to its declining value as a way to pull back on the funding it provides to Binance. In the FTX, the decline in the value of the coin that the company floated was the beginning of a run on the bank, which eventually terminated FTX’s ability to operate. Fortunately, the limited use of the BNB token is unlikely to unwind the company, as in the case of FTX.
Troubles At Binance Impacting Cryptocurrency Trading
The troubles at Binance have impacted cryptocurrency trading, although the specific effects can vary. Binance is one of the largest cryptocurrency exchanges, so any issues it faces can have ripple effects throughout the market. Events such as security breaches or regulatory scrutiny can shake market confidence, leading to increased volatility and potentially negatively impacting the trading volume and prices of cryptocurrencies.
Additionally, if Binance faces regulatory challenges or operational difficulties, it might result in temporary disruptions or limitations to its services. This scenario can affect users’ ability to deposit, withdraw, or trade cryptocurrencies on the platform. As a result, some traders might choose to move their assets to other exchanges, potentially shifting trading volumes and impacting the prices on those platforms.
It’s worth noting that the cryptocurrency market is highly diversified, with various exchanges and trading platforms available globally. Therefore, while Binance’s troubles might affect certain aspects of cryptocurrency trading, the overall market has shown resilience and adaptability. Traders often navigate these obstacles by seeking alternative platforms or adjusting their strategies to mitigate potential risks.
While several cryptocurrencies listed on Binance, such as Bitcoin (BTC) and Ethereum (ETH), saw temporary price drops, the overall market reaction was not limited to a single currency. Cryptocurrencies, in general, can be influenced by various factors, so it’s advisable to stay updated on recent developments and news regarding individual coins or the crypto market as a whole.
The Bottom Line
The upshot is that the cryptocurrency markets will likely be impacted significantly by the demise of the largest cryptocurrency exchange. The SEC is suing Binance for a deluge of infractions, including failure to supervise and different types of fraud. Even worse, Binance is a target of a Federal Criminal investigation, which could be punishable by imprisonment.
What also seems to be important not to overlook is that the broader cryptocurrency markets have taken some of these issues in stride. FTX used an exchange cryptocurrency which also was used to generate a value for the exchange. Some criminal and civil complaints point to a lack of oversight, but there does not seem to be a scenario where Binance used customer money to trade a hedge fund, like in the case of FTX. Binance has been able to hold on to customer funds despite these allegations.
The broader cryptocurrency markets have likely priced in the likelihood of further civil and potentially criminal charges against Binance and its CEO. The markets have held up despite several issues related to the current infrastructure of the cryptocurrency trading environment.