After Binance pleaded guilty and received a $4.3 billion fine: whether the top spot can be retained, and where is the strict supervision going

Recently, Binance and its founder Changpeng Zhao reached an agreement with the U.S. Department of Justice and pleaded guilty, causing shocks in the cryptocurrency circle.

On November 21, local time, Binance and Changpeng Zhao reached an agreement with the U.S. Department of Justice, which will allow Binance to continue operations. Among them, Binance pleaded guilty to charges of money laundering, unlicensed remittance, and sanctions violations, and will pay a fine of $4.3 billion, while Changpeng Zhao admitted to violating U.S. anti-money laundering laws and agreed to pay a fine of $50 million and resigned as CEO.

A press release published on the official website of the U.S. Department of Justice

Changpeng Zhao pleaded guilty and was released on $175 million bail and will face a sentencing hearing on February 23, 2024, although his final sentence is expected to be no more than 18 months due to his voluntary guilty plea.

Currently, Binance is the world's largest cryptocurrency exchange. Will the above events affect Binance's status as the "industry leader", and what will be the impact of this regulatory incident on the crypto industry?

Yu Jianing, co-chairman of the Blockchain Committee of the China Communications Industry Association and honorary chairman of the Hong Kong Blockchain Association, told The Paper (www.thepaper.cn) that the event symbolically shows that cryptoasset exchanges still face severe compliance challenges around the world, and that even the largest cryptoasset exchanges in the market have serious compliance deficiencies, especially in key compliance areas such as anti-money laundering (AML) and customer identity verification (KYC).

Will Binance's position as the world's largest cryptocurrency exchange be shaken?

The regulatory incident and the high fines quickly sparked questions about Binance. As of the evening of November 22, Eastern time, relevant data showed that investors had withdrawn about $956 million from Binance in the past 24 hours.

Hong Shuning, a senior Bitcoin researcher, told The Paper that the $4.3 billion fine seems to be very high, but it does not need to be paid at once, and Binance can slowly pay it from its daily profits, which will have a greater negative impact on Binance's operations, but it is not fatal, but it clears the way for Binance's compliance operation. Judging from the illegal acts revealed in the public news, compared with FTX's arbitrary misappropriation of user funds, Binance's self-discipline is still very high, and there is no behavior that excessively harms the interests of users. And for Binance users, there is no better alternative at this time. Therefore, Binance's market share will decline significantly, but it can still maintain its current position, and there may be room for growth in the future.

Yu Jianing believes that this incident will inevitably have a certain impact on Binance's global market position. While Binance is still the world's largest crypto exchange, the legal issues and hefty fines it faces have undoubtedly taken a toll on its reputation and customer confidence. Clients are concerned that the institution may also face compliance issues and regulatory challenges in other jurisdictions, and that if Binance's global operations are further scrutinized, it may require Binance to adapt its business model to more stringent international regulatory standards, limiting its business potential and leading to a significant increase in operating costs.

At the same time, against the backdrop of increased regulatory pressure, other exchanges may compete with Binance for global market share through measures such as strengthening compliance and improving transparency. Yu Jianing said that after this incident, Binance will also conduct self-examination and adjust its business strategy, which will help Binance develop steadily in the long term in the future and enhance its long-term competitiveness.

What is the difference between the Binance incident and the FTX crash

The Binance incident is very reminiscent of last year's FTX crash. Both have triggered strict regulation by U.S. regulators.

At the beginning of November last year, FTX, the once leading cryptocurrency exchange, was exposed to a liquidity crisis. On November 11 last year, FTX founder Sam Bankman-Fried announced on social media that more than 130 FTX group entities, including cryptocurrency exchange FTX, U.S. subsidiary FTX.us, and Alameda Research, had voluntarily filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code and resigned as FTX's CEO.

In early November this year, a jury in the federal court in Manhattan convicted Bankman-Fried of all seven counts of money laundering and fraud. The FTX founder could face up to 110 years in prison.

Hong Shuning pointed out that FTX's arbitrary misappropriation and theft of user funds is an obvious subjective and malicious crime, and it is an infringement of user property. Binance, on the other hand, is mainly a lack of compliance, which objectively facilitates money laundering and does not infringe on users' property. This is the fundamental difference between the two.

Yu Jianing believes that Binance is mainly involved in compliance issues and violates some financial regulations in the United States. In contrast, the FTX crash was due to the fact that FTX did not store user funds in separate accounts, and even misappropriated nearly 10 billion user funds for proprietary trading and suffered large losses, and there were major problems in the company's internal operations, including the risk of related party transactions, misappropriation of customer funds, and deficiencies in the corporate governance structure. Although Binance faces fines and legal liabilities, it does not have the same liquidity crisis or bankruptcy risk as FTX.

A cryptocurrency observer told The Paper that the essence of the FTX crash is the misappropriation of user assets, which is intolerable to any market, regulator and relevant stakeholders. And Binance's problem is inevitable at the stage of the industry's brutal development. "Even though Binance usually pays more attention to compliance and cooperation with regulators in various countries, it will inevitably have some flaws. Pleading guilty, paying a fine and being put under supervision is a more in the interest of all parties. ”

"The crypto industry needs to embrace regulation further"

On the day of Binance's and Changpeng Zhao's guilty pleas, U.S. Treasury Secretary Janet Yellen said, "Today's historic punishment and oversight marks a milestone for the virtual currency industry to ensure compliance with U.S. laws and regulations." Any institution that wants to benefit from the U.S. financial system, no matter where it is located, must comply with the requirement to protect us all from terrorists, foreign hostile forces, and crime, or face consequences. ”

According to the analysis of the above-mentioned cryptocurrency observers, the essence of this matter is that the crypto industry has grown into a market that cannot be ignored. From the perspective of the United States, it will not allow such a large market to be completely out of its control. On the one hand, it is necessary to avoid uncontrollable risks, and on the other hand, it is also necessary to obtain benefits in this market.

He believes that this Binance regulatory incident is equivalent to a boot landing on the crypto market, eliminating a hidden mine. Other crypto exchanges, which are large and completely outside of US control, are also likely to be targeted by US regulators. But with Binance's case first, as long as the exchange itself is not a big problem, it will not cause much shock.

"The Binance incident represents the need for the crypto industry to further embrace regulation. On the one hand, crypto institutions should pay more attention to compliance to avoid uncontrollable problems, and on the other hand, they should strengthen cooperation with regulators and traditional financial interests and transfer some of their interests to traditional financial interest groups. Said the aforementioned cryptocurrency observer.

Yu Jianing pointed out that although crypto assets have a certain degree of decentralization and anonymity, due to the expansion of market scale, the increase in the attention of regulators and the frequent occurrence of institutional "thunder" incidents, compliance has become a key factor affecting the development prospects of crypto asset institutions. With the continuous growth and maturity of the crypto asset market, regulators will pay more attention to investor protection and financial stability in this field, and will put forward stricter entity registration requirements, anti-money laundering requirements and specific regulatory measures.

The future direction of regulation of the crypto industry in the United States

Hong Shuning believes that one of the characteristics of U.S. law is that it takes a long time to go back to the country, and cryptocurrency exchanges have not had a clear legal and regulatory system for a long time, and the law of the jungle has led to barbaric growth, and various violations of laws and regulations will inevitably occur in this process, and they cannot be corrected in time. This "black history" is a common phenomenon and a reasonable result of the operation of the market, and the fundamental reason is that laws and regulations are not in place.

Yu Jianing expects that after the Binance regulatory incident, the U.S. regulatory authorities will be more in-depth, comprehensive and systematic in their supervision of the crypto asset market, especially in ensuring public safety and financial stability. In the future, it can be expected that the supervision of crypto-asset institutions by the U.S. regulatory authorities will tend to be systematic, standardized and refined, and the regulatory policies will be more perfect, especially in terms of consumer and investor protection, and more detailed rules and measures may be introduced.

At the same time, it will also focus on cracking down on illegal financial activities using crypto assets, such as money laundering and terrorist financing, and clean up the market through more aggressive enforcement actions.

In addition, with the globalization of the cryptoasset market, the United States may strengthen cooperation with regulators in other countries and gradually form an international regulatory coordination mechanism, especially in cross-border transactions and anti-money laundering.

"This incident may prompt regulators in various countries to strengthen the supervision of cryptoasset trading platforms on a global scale, and may even become a key turning point in the compliance process of the cryptoasset industry, which will have a far-reaching impact on improving the level of industry regulation and investor protection. Yu Jianing said.