I think it is safe to say that one of the worst positions in the crypto space to be in right now is that of a centralized crypto exchange. The fall of FTX has highlighted flaws that previously were overlooked and the collapse has gotten so massive that regulators are really foaming at the mouth ready to go after those that they can. Even though FTX was not the world's largest exchange it was the most engaging with the public and lawmakers and since its fall Binance the largest exchange has been more or less thrown into that role.
I think that with this newfound light that Binance is facing and the cracks or issues that have already shown we can understand why they tried to operate in the dark/out of the spotlight. Regulators had already been all over Binance for the company structure previously and it was a consistent thing that had really dogged the company. To their credit though they were able to dodge having any issues that would shine a light on them in an unfavorable way. That was until the collapse of FTX and the way that CZ handled the fallout.
Unlike SBF, who thrived in the spotlight, CZ has been careful to really avoid it at almost an all-cost approach. This is what really allowed Binance to become the huge global powerhouse that it is now today. However, this approach does have its drawbacks because CZ was so focused on staying out of the spotlight that he never really formed the types of relationships with regulators or legislators that you would expect for a company of this size. In what I can only think was an accident the silence that CZ and Binance operated under resulted in regulators and legislators looking at them in a negative light because they did not find what I would argue is a proper balance between the two.
Binance's exacerbated its regulatory issues when it released its proof of reserves and then ended up moving those very reserves around not long after the fact. A move like this when you are trying to prove you have the money to back your stablecoin is going to catch any regulator's attention and has done so as we have seen with Paxos freezing and issuing new BUSD and in essence getting in trouble for what Binance itself has done. Paxos was a vital partner for Binance in the US and so the loss of them is really hard to quantify as it was the vital link for the US market. Yes, Binance.US is also important but it does not have near the reach that the Paxos partnership did.
Not to further bash how Binance has operated but when they were caught accidentally mixing collateral for BUSD with customer funds an accident like that is only music to anti-crypto individuals' ears. It is a basic mistake that just cannot happen yet now has. To their credit, they have tried to leverage their position and work with governments to track and freeze illicit funds and have successfully done so on serval occasions but this also at the same time has drawn scrutiny from crypto purists who do not think crypto companies, especially centralized exchanges, should work with governments or regulators. Essentially both sides extremes are able to take these moves to argue their point and muddy the waters of how things are going.
The biggest metric for how this has impacted Binance or the easiest to see is going to be the outflows that have been significant, to say the least. No matter what size company you are when you have outflows this large and this quick it does cause one to do a double take and make sure they are reading these numbers correctly. Since the start of the year, billions have been pulled out of Binance accounts and even though it remains the world's largest exchange it is not a healthy sign.
Regulators are coming for Binance and how they proceed is going to be a rather intriguing thing to see. While the US might be who leads the charge this is going to be a widespread occurrence. Europe, East Asia, and even the Middle East are all going to double and triple check this company and ones like it since there is so much money at stake both for wealthy individuals but also for the technology and scale of damage that another disaster could cause. Binance still relies on its reputation to be a stalwart in the industry and if that starts to show cracks in it they are going to be in deep deep trouble.
Please know I am not a financial advisor and make sure you do your own research! If you enjoyed this article and would like to support me further below are a few referral links that if you used when signing up I would appreciate it! Also, follow me on Twitter @Cje95_
Offers daily wheel spins to win free sats daily! If you sign up for Fold with my link here you will get 20,000 sats for free!
Robinhood is offering an excellent signup deal if you use my link here where we will both be awarded free stock. All that you have to do is sign up and connect your bank account for the award! With commission-free crypto trading and the ability to set limit orders, it is a great hybrid offering in my opinion! Not to forget the addition of wallets and the ability to send and receive crypto!
Sign up using my link here and get a free $10 credit towards your first $40+ purchase!