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  • US Gov Sends A Strong Message: Binance Gets Charged, CZ Steps Down, and Chaos Ensues

US Gov Sends A Strong Message: Binance Gets Charged, CZ Steps Down, and Chaos Ensues

CZ agreed to step down as Binance's CEO and to pay fines totaling $4.3 billion – marking the 7th largest financial compliance fine in history and the largest fine ever levied by the Justice Department on a single corporate entity.

What a week so far… here’s a quick timeline to catch everyone up:

On Monday, the SEC sued crypto exchange Kraken over alleged securities law violations. Think of it as the same treatment Coinbase got a year ago. Same bullying tactics from the SEC, different company. More on that below :)

Later that evening, another bomb dropped. In a joint effort, the DOJ, CFTC, and the Treasury Department – notably, not the SEC – brought criminal charges against Binance and its founder and CEO, Changpeng “CZ” Zhao.

The Justice Department charged CZ and others with violating the Bank Secrecy Act, arguing they failed to implement an effective anti-money-laundering program and willfully violated U.S. economic sanctions "in a deliberate and calculated effort to profit from the U.S. market without implementing controls required by U.S. law."

  • Digging deeper: During a press conference, Janet Yellen explained that “beh-nance” allowed illicit actors to make 100k+ transactions supporting activities such as terrorism, child sexual abuse, and illegal narcotics and that it allowed more than 1.5 million virtual currency trades that violated U.S. sanctions.

    The exchange allegedly also allowed transactions associated with groups such as Hamas' Al-Qassam Brigades, Palestinian Islamic Jihad, al-Qaeda and ISIS. To add, Yellen noted that Binance "never filed a single suspicious activity report."

On Tuesday, CZ appeared before a judge in a Seattle courtroom to enter his plea: guilty.

The end result: CZ agreed to step down as Binance's CEO and to pay fines totaling $4.3 billion – marking the 7th largest financial compliance fine in history and the largest fine ever levied by the Justice Department on a single corporate entity.

Narratives Gone Wild

Considering that Binance is the largest crypto exchange in the world, controlling roughly 40% of the entire market share, crypto enthusiasts everywhere were searching for takeaways.

In typical Crypto Twitter fashion, a boatload of narratives arose… some of course being absolutely ridiculous and others holding some weight.

Because this is indeed such a big deal for everyone involved in crypto… we’re going to have some fun today and discuss each trending narrative.

To be honest, this all occurred only 24 hours prior to us going to print. Ideally we would have had some time to let the dust settle and do more legitimate reporting. But here goes nothing.

Narrative #1: Binance is insolvent or dead
Our Take: False.

While US regulators slapped an enormous fine on the company and forced CZ out of his role, Binance is allowed to continue to operate. Richard Teng, who pitched Binance’s “strong foundation” on Twitter shortly after the news hit, is now the man in charge.

Although the exchange saw a significant uptick in withdrawals after the news, Binance isn’t dead by any means. The exchanges’ wallets control over $65 billion worth of funds and will still facilitate a lion-share of spot and derivative volume.

As a reminder, Binance has been doing monthly attestations on client reserves for about a year. It’s not the most transparent thing on the internet, but it's lightyears away from an FTX situation.

Narrative #2: CZ is a hero!
Our Take: ehhh

Are Binance and CZ positive forces on crypto? One can argue for or against them pretty easily.

There’s no question that Binance has been one of the most important companies in driving global crypto adoption, but it's crucial to acknowledge that they also did some things that were highly questionable. 

Was CZ’s Binance banking the unbanked? Sure. But he was also knowingly skirting laws. Let’s be honest, Binance hasn’t always had the cleanest track record. 

We’ve been telling our readers to get off Binance as quickly as possible for years now not only because of its regulatory risks, but because of its lack of transparency and ties to sketchy individuals and countries.

Did CZ make the right choice by pleading guilty? For sure.

And did Binance ever, on the record, commingle user funds like FTX? No.

But all that doesn’t mean we should salute him and hail him a crypto hero. 

Narrative #3: The US Gov is a hypocrite!
Our Take: Always – but less so this time

Well, of course they are. But when it comes to yesterday’s legal actions, we honestly can’t blame them for the actions they took. 

It’s easy to say that the US government does a very poor job protecting US investors. Afterall, they failed to protect investors from FTX and instead spent their effort going after exchanges like Coinbase and Kraken who have never lost a dime of user funds.

But that’s an entirely different argument. Yesterday’s legal actions were mostly all about AML laws and safeguards. Big banks all went through some version of this years ago.

Notably, the SEC – who everyone seemingly hates at this point – wasn’t involved in this case whatsoever. It was strictly a matter with the CFTC, DOJ, and US Treasury. In other words, this wasn’t about what is and is not a security. It was a matter of regulatory authority, not clarity.

Narrative #4: Big Win for Coinbase
Our Take: True

This week’s actions were unequivocally a massive win for the Coinbase team and shareholders. The company’s main competitor just got slapped with a huge fine, a US overseer, and confirmation they won’t onboard US users. 

Coinbase CEO, Brian Armstrong, flexed on Twitter yesterday boasting about the company’s hard-fought compliant approach. Well deserved.

Not to be too overlooked, Coinbase’s second largest competition in the US, Kraken, was hit with a lawsuit from the SEC that claims the company operates as an unregistered securities exchange.

All of this has led Coinbase (COIN) to trade above it’s 1-year share price high.

Narrative #5: This is bullish for bitcoin ETFs
Our Take: True

Now for the elephant in the room…

If there was one debate that stood out the most amidst the chaos, it was around what the news means for a spot bitcoin ETF. 

On one end of the spectrum you have commentators claiming that yesterday’s news removes one of the largest overhangs for the crypto industry: the ability for off-shore price manipulation. Furthermore, the settlement reduces the likelihood of a collapse of Binance leading to rippling systemic risk a la FTX.

By these arguments, yesterday’s news is a net positive for the potential approval of a spot bitcoin ETF. 

On the other end, there is still a looming lawsuit from the SEC alleging that BNB is a security, that CZ-controlled entities were responsible for funds trading between Binance and BinanceUS, and that these entities were involved in wash-trading. Long story short – there is still a lot more overhang than people realize. 

Not to be overlooked is the apprehension within the crypto community that this may serve as a covert avenue for traditional financial institutions to supplant the native players in the crypto space. But that’s a discussion for another day.