What the Binance Judgment Means for Crypto

CZ is out, Binance is out billions, and crypto is ready to move on
Nov 21, 20233 min read

The United States regulatory apparatus assembled Tuesday afternoon in Seattle to convict crypto's largest exchange of violating criminal US anti-money laundering requirements and the Bank Secrecy Act.

Binance has reached deals with an alphabet soup of federal agencies, putting an end to the criminal investigation into the crypto exchange that began back in 2018.

Chief executive Changpeng Zhao (colloquially known as CZ) must leave his role for at least three years, but the exchange he owns can continue to operate.

Binance will pay a hefty $4.3B in fines to settle the matter – the 7th largest financial compliance fine in history – but the company appears to have more than enough assets to pay the fine without needing to sell crypto assets.

Today, we answer your burning questions about the latest crypto regulatory action!

Did Binance do anything wrong?

Binance and CZ clearly did break American laws. Unlike the frivolous assaults against DeFi protocols and exchanges who have "failed to comply" with an unwritten set of rules, Binance was targeted for what regulators perceived as a willful disregard of established laws.

The complaints we've seen lodged against Binance reference numerous instances where compliance staff provided white glove service to illegally onboard US customers to the international platform and cite multiple transactions related to terror groups and illicit finance.

Furthermore, through leaked chat messages we can see company officials outright admitting to crimes over the years, serving up this case for regulators on a silver platter.

What's next for Binance?

Despite its years-long run as crypto's top exchange, the future looks pretty tough for Binance.

Binance has already experienced difficulties obtaining licenses or operating across numerous jurisdictions, including Australia, Austria, Belgium, Canada, Cyprus, Holland, and Germany. Today's announcement will only clear the way for foreign regulators to come after the exchange with fines or prevent the company from operating in their jurisdictions outright.

Further, while Binance will be allowed to continue operations, the deal includes robust monitoring and oversight provisions, imposing considerable compliance hurdles to operations. Binance must also tread carefully to avoid illicit practices that may have brought it volume over the years, like wash trading and money laundering.

All in all, Binance may not have the same startup-like agility it once had to pursue rising opportunities.

What's next for crypto?

Markets have taken today's news in stride; there has been no liquidity drain or immediate rush to the exits on today's news.

While quite possibly the beginning of the end for Binance, it appears the DOJ has fully inspected their closest and found no fatal flaws that could lead to insolvency and would risk causing another crypto collapse – something to be thankful for this Thanksgiving. Assuming that no further developments and investigations spawn from the Binance case, it's safe to consider crypto considerably de-risked from this existential overhang.

While today's regulator action does little to provide clarity on the various opaque rules that the US Government wants crypto companies to comply with, it does showcase that some actors in the space have been more willfully disobedient than others and weren't acting with an eye towards longevity. This kind of sloppiness hurts the rest of the industry.

Crypto's battle with regulators is going to be difficult and framed by unfair aggression and bureaucratic overreach. Gensler isn't the only enemy out there. But it's clear from minimal price action that Binance's exposure here was well-known and priced-in. Now, crypto can push for another bull market with clearer sights.

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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