Blog: What Being In Regulatory Crosshairs Means For Binance – Investopedia

Multiple U.S. regulators have the world’s largest crypto platform, Binance, in their crosshairs. casting doubt on the path ahead.

U.S. Crypto Crackdown and Focus on Binance

U.S. regulators are getting serious about cracking down on cryptocurrency markets in light of the collapse of FTX. It’s being eyed by agencies ranging from the U.S. Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and the New York Department of Financial Services (NYDFS).

“Binance is stuck in the middle of a coordinated attack on crypto by U.S. financial regulators,” said Thomas Hogan, a senior research at the American Institute for Economic Research. “Binance is being targeted because it’s structured like the now-defunct crypto exchange, FTX—an offshore entity with ‘regulated’ U.S subsidiary.” 

Binance didn’t respond to a request for comment.

In 2019, Binance.com ceased to operate in the U.S to comply with Know Your Customer (KYC) and anti money laundering (AML) rules. Instead, it launched Binance.US, a separate crypto-exchange in the U.S. that licenses the Binance name but is operated by BAM Trading services.

Recent Regulatory Actions Against Binance

It’s not just the number of regulators probing Binance and its U.S. partner that’s worth noting-it’s also the breadth of scrutiny. Product offerings, business decisions, and operations of Binance and its U.S. arm have all come under the lens of one regulator or another.

Regulators and the Voyager Acquisition

The SEC is objecting to Binance.US’s $1.02 billion acquisition of bankrupt crypto lender, Voyager Digital. 

One of the biggest concerns for the SEC, as highlighted in court documents, is Binance.US’s ability to safeguard investor assets. The regulator claims that the company hasn’t provided adequate information about internal controls and custody of customer assets as well as whether third-party affiliates will have access to customer information.

The objections came after Reuters reported that Binance accessed the Binance.US account at California-based Silvergate Bank (SI) and moved $400 million into another account. A spokesperson for Binance.US said the report used “outdated information” and that “only Binance.US employees have access” to the company’s bank account.

Some state regulators have their own concerns. The NYDFS alleged that Voyager was an unlicensed entity that operated an “illegal virtual currency” in New York and said Binance.US is unlicensed within the state and doesn’t qualify for an “asset purchase agreement” under its law.

Texas regulators said Voyager’s creditors would have a better chance of recovery if the firm sells its assets compared to a case in which the Binance.US deal goes through and FTX’s trading arm Alameda Research is able to claim recovery of a big loan to Voyager. Texas regulators are also worried about whether the customers signing the terms of use of Binance.US after the deal “may even effectively permit Binance.com to act in the U.S. even though Binance.com purportedly does not deal with U.S. customers.” New Jersey regulators supported these concerns.

Regulators on Binance Stablecoin BUSD

The Binance stablecoin (BUSD), once the third largest stablecoin by market cap, felt the heat from NYDFS after it ordered crypto platform Paxos to stop minting BUSD.

According to the regulator, the action was a result of “several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD.”

Binance CEO Changpeng Zhao tweeted that he foresees users migrating away from BUSD as a result and that his company will probably do the same.

After the NYDFS order, BUSD lost about $2.5 billion in market cap with most of those funds moving to Tether stablecoin (USDT), according to another tweet from Zhao. Crypto exchange Coinbase (COIN) delisted BUSD from its trading platform. Binance itself is rapidly turning its focus to TrueUSD stablecoin, minting about $130 million of the token in a week and catapulting it to the fifth-largest stablecoin by market cap.

The SEC is also reportedly intensifying its crackdown on stablecoins, allegedly looking to sue Paxos for issuing BUSD. It has already taken action against Terraform Labs and its founder over the company’s TerraUSD stablecoin.

What Does This Mean For Binance?

In the past Binance has adapted to regulatory actions, and that may happen again.

“Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm,” tweeted Zhao on Feb. 13, after the NYDFS order against Paxos.

Yet there’s little chance that Binance will giving up on U.S. markets.

“It’s unlikely that we will see Binance leave the U.S., the world’s largest economy by GDP,” said Matt Senter, CTO of bitcoin rewards application Lolli. “Binance would be forsaking its position as a leader in the crypto industry by leaving the U.S. and conceding an immense economic opportunity of reaching a capital-intensive American userbase,”