Unfortunately no one is having a worse week than Binance — Changpeng Zhao (CZ) essentially pleaded guilty to breaking anti-money laundering laws (AML), and even though Binance exists outside of United States’ regulatory purview, US customers still made a pretty substantial chunk of their income.
As a result, they were fined $4.3 billion and CZ was forced to resign his position as CEO. Now we will get to see what the real damage could be in just a couple weeks or maybe a couple months because this whole event divided the crypto industry.
Let’s try to present both sides of this perspective so you can make up your own mind and form a conclusion.
The Two Sides
The popular side says Binance’s fallout is overall a good thing as it is the next chapter of crypto’s story where it purges itself from all the bad actors that could potentially hurt the space, which should clear the way for good regulations so that financial institutions like BlackRock could finally clear the path for their Bitcoin and Ethereum Spot ETFs to get approved.
On the other side though, a less popular opinion is that now the US government has access to Binance, they will be able to see all the past fraudulent activities, all the past Tether and stablecoin price manipulation tactics, all the wash trading and all the money laundering and this could set the crypto industry back a long time, not just from a regulatory perspective but perhaps price-wise as well.
The US Government’s Perspective
The US government claimed that Binance did not renounce its US businesses as it had claimed and instead worked with large US customers to hide their locations.
The US government added that Binance allowed these criminal activities to take place and it even had systems in place that warned “VIP” customers ahead of time if they got too suspicious. And it was not just the criminal groups, it was also sanctioned countries which are supposed to be blocked off from any US financial services and the dollar.
And because Binance allowed all of this to happen, they were fined $4.3 billion. The US Treasury actually said that it is the biggest punishment they have ever bestowed on a financial institution.
The truth here is that CZ could probably pay all the fees from his own wallet if he wanted to and even though he is not allowed to operate as the CEO for the next 3 years, he could still technically come back after that time period is up and serve as the CEO again, so this does not seem like it has anything to do with punishing or getting money — it has everything to do with gaining access to the past, present and future financial transactions of Binance.
What’s Going To Happen Next?
What happens next in crypto that everyone is so excited for is of course the approval of a Spot Ethereum or Bitcoin ETFs — everyone is excited and it is a huge deal.
Going back to the two sides, one of the theories says that the downfall of CZ and Binance is overall a good thing because by ruling out a bad potential player in this space, it should hypothetically clear a pathway for the approval of one of these Spot ETFs.
Even JPMorgan chimed in to say that this is a good thing because it eliminates another possibility of a systemic collapse especially because Binance represents roughly 40%-60% of all the Bitcoin trading volume and the second biggest exchange Coinbase, is not even close at 5.4%.
And even the CEO of Coinbase, Brian Armstrong, says that his strategy of actually working with the regulators is finally paying off. But he also argues that even though Binance allowed all these illegal things to happen on their platform, that still only represents a small percent of how the crypto space is used day-to-day, especially when compared to the dollar.
So all good news for Bitcoin and Ethereum — this is the popular theory which is that the approval of the ETF is right around the corner sometime inQ1 of 2024.
How Could This All Go Wrong?
You might remember by the way in BlackRock’s ETF filing, their custodian of choice — the company that is going to manage their assets — was Coinbase; and Coinbase is not on the best terms with the SEC right now because they have their own lawsuit going on.
The point is it would look a little strange if the SEC approved an ETF where the custodian company was a company they were actively suing — so until that is resolved, I think we will have to wait.
Taking everything into consideration, the approval of a Spot Bitcoin or Ethereum ETF will depend on what the SEC will find from Binance. Between now and the approval, I think we will see some really interesting price action.
But in the long term though, people are super excited about these ETFs because they think it will tremendously help Bitcoin and Ethereum because the SEC has put themselves in checkmate when they approved the Futures ETFs — because despite all these allegations, the Futures ETFs face the exact same issues; and so they cannot approve one without eventually approving the other.
Whether that’s Q1 of 2024 or 2025, we absolutely have no idea. But in the meantime, it is important to stay safe and be cautiously optimistic and take your cryptocurrencies off exchanges and self-custody your funds.