Is Binance’s New Boy Crypto? Regulators in the United States, United Kingdom, Canada, Japan, Thailand, and the Cayman Islands have recently issued warnings and even criminal charges against the cryptocurrency exchange. Even Poland joined the fight when its financial regulator warned its citizens to be “extra careful” when using Binance’s trading services.

Some have suggested that the company is solely responsible for the recent regulatory heat boom, but others fear the exchange will be seen as a scapegoat for the entire crypto sector – which has grown too quickly in the eyes of some authorities. In a separate development, Binance CEO Changpeng Zhao, better known as CZ, was forced to address “the recent over-focused focus on regulation at Binance” in a public letter.

Binance – founded in Shanghai in 2017, but without a current accredited headquarters – has never been a model child of compliance. Dan Awrey, a law professor at Cornell Law School, told Cointelegraph, “Binance has attempted to evade regulation in the past while making false claims about regulation in some of these jurisdictions.” “

Markus Hammer, attorney and director of consulting firm Hammer Execution, told Cointelegraph that regulators are only reiterating previous warnings but are now getting more attention.

“Warnings are often a preliminary stage in order to take concrete measures,” explains Hammer, for example the ban on using a certain platform for customers. “Another reason could be that they are currently trying to distance themselves as investors prepare a lawsuit against Binance Leveraged Tokens (BLVT),” which he describes as a “flawed” financial product. He added, “A repeated warning that Binance is not regulated will save them from being charged with blindness or previously inactivity.”

But only a warning can have consequences. When UK regulators warned in late June that Binance was operating without a business license, banking giant Barclays announced that it would no longer assist its clients with paying for the translation, and Santander would follow suit a few days later.

No withdrawals widely used

But maybe you don’t have to overreact? Winston Ma, associate professor at New York University School of Law and author of Digital Wars: How China’s Tech Power Is Shaping the Future of AI, Blockchain, and Cyberspacesaid Cointelegraph, adding:

“This shows that Binance has a global and decentralized business and the market is not too concerned about the recent actions of these countries.”

Unregulated crypto exchanges like Binance have long been considered the starting point for money laundering and other criminal activity. During 2019, Chainalysis tracked $ 2.8 billion Bitcoin (BTC) transfers back to exchanges from criminal organizations, suggesting that “just over 50% are among the top two: Binance and Huobi” . most.

Zhao suggested in his July 6 letter that regulation often brings innovation, especially in revolutionary technologies like cryptocurrencies: “The adoption and development of cryptocurrencies bears many similarities to car regulations. When the car was invented, there were no traffic rules, traffic lights or seat belts. ”Those that come later. “Crypto is similar in the sense that it is accessible to everyone, but frameworks are needed to prevent abuse and bad actors. […] Binance wants to make an active contribution. “

“Financial regulators aren’t necessarily keen to hunt down all crypto companies,” Awrey said, “the real problem is that many crypto exchanges don’t take customer protection seriously or comply with the law.” Most exchanges don’t offer basic privacy, like he states in an upcoming book: “In this context, it is unrealistic to believe that regulators sit back and do nothing.”

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That’s not necessarily bad for the crypto sector either. “On the contrary,” Carol Alexander, a professor of finance at the University of Sussex Business School, told Cointelegraph, adding, “We are all waiting to get rid of the fraud and tampering with the value of the coins that are being used as gas for Smart contracts are needed – e.g. Ether, DOT, Cardano. She further sketched for Cointelegraph:

“The real problem with crypto isn’t that Bitcoin is fundamentally worthless – it’s Binance and Tether [USDT]. In essence, these two companies are related as most of the inflows into Binance are USDT. Without Binance, Tether’s market cap would be much less than $ 62.5 billion. “

According to Alexander, the immediate reason Binance cracked down on it was a series of class action lawsuits on behalf of users “who lost everything on May 19 due to automatic liquidation during the period”. “Sustain mode at BLVTs after a strong price movement, after which the tokens open much lower instead of increasing in price. “

Growing protective mood?

In a recent LinkedIn post, Hammer noted that many crypto exchanges around the world operate without a license – but are not subject to the same regulatory measures as Binance. “Therefore, one could argue that unspecified measures against Binance were born out of clear protectionist anti-cryptocurrency reasons” – and not for “good reasons” such as BLVT.

As a result, attention to Binance could be viewed as “somewhat arbitrary” where regulators are allegedly picking “the biggest black sheep,” he told Cointelegraph. The two countries Hammer cites that can show this protectionist sentiment are Japan and the UK.

The regulatory heat of places like Thailand and the Cayman Islands probably won’t worry Binance too much, but what is happening in China and the US could be a different story. “The most important thing for Binance in terms of regulation will be China and the US, the two largest crypto markets and also the two most powerful regulators,” Ma told Cointelegraph.

What if the US takes significant legal action against Binance, or if China completely cuts the link between online crypto traders and overseas exchanges like Binance? “These are the epicentres of the global crackdown on Binance,” added Ma.

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“I think Singapore will shine because the MAS has signaled that it wants to become a crypto hub,” Awrey told Cointelegraph, referring to the Monetary Authority of Singapore, the country’s central bank. Accordingly, if MAS denied Binance’s recent request to do business in Singapore, “it could be viewed as disclosing personal information about the company’s risk profile”.

Binance seems interested in the related stakes. In the letter from CZ, he further stated that “we have expanded our international compliance team and advisory board by 500% since last year,” including the addition of a former military operations secretary. Financial Specialist Rick McDonell serves as regulatory and compliance advisor, as does former US Senator and Ambassador to China Max Baucus.

Is this to be seen as a sign of good intentions? Hammer replied: “Yes. “You take it seriously – the risk is too high. The real problem seems to be the lack of a regulatory framework, although I would also be careful with the numbers. ”That said, Binance has been able to achieve a 500% compliance growth since last year, but what’s the starting point – a single compliance advisor ? This is not stated.

Are new regulatory approaches necessary?

Others argue that countries don’t really have a mandate to control borderless, decentralized companies – although most view Binance as a centralized exchange, even if their headquarters are very difficult to determine. Awrey said:

“While many companies are borderless and decentralized, most of their customers are not. In theory, this opens the door to forms of regulation and enforcement that many in the crypto community seem disliked. “

“The problem is not that there is too little regulation there, but that – especially in the USA – there is a lack of classification with regard to cryptocurrencies and tokens, which regulatory authorities and regulations should apply to which case and which situation,” says Hammer .

In comparison, Europe is “quite progressive with its blockchain, DLT and token cryptosystems, especially in Switzerland and Liechtenstein” and has excellent regulatory and regulatory frameworks, said Hammer, while according to Alexander:

“We have to set up an international crypto market committee that meets monthly and gives recommendations on how to implement local rules and regulations – just like the Basel Committee on Banking Supervision with the Basel Agreement.”

However, this could take some time, she admits, “and does nothing to force developing countries to prosper by trading in crypto assets and derivatives – for example Malta – to apply these recommendations”. In summary …