Will Binance, with a profit of 1 billion US dollars, attract the supervision of the US government?
Abstract: There is no doubt that Binance is the world's largest cryptocurrency exchange, but it will face severe challenges from the US government in terms of derivatives and security tokens. Unlike BitMEX and others, Binance has always hoped to become the "good boy" of the United States and has invested heavily in embracing regulation.
On December 4th, the founder of Binance, Changpeng Zhao, was elected as the top 50 people in the world by Bloomberg. In an interview with Bloomberg, he said that Binance’s profit in 2020 will be 8 to 1 billion U.S. dollars, and the profit in 2019 will be 570 million U.S. dollars. It may be the most profitable company in the global cryptocurrency industry. . Recently, two competitors from China, Huobi and OKEx, have been trapped in investigations since October, and data shows that Binance’s business has benefited from this.
The founder of Binance left China after 9.4, which became its competitive advantage. However, Binance's competitors are also emphasizing that the U.S. government's crackdown on leading cryptocurrency companies will be a hidden worry for Binance. The U.S. government’s strong supervision of BitMEX and TELEGRAM, the former is aimed at derivatives, the latter is aimed at security tokens, Binance Global Station and BNB are also more or less involved, so does Binance have risks from the other side of the Pacific Ocean?
On October 29, Forbes broke the news that Binance intends to evade US cryptocurrency regulation through a well-designed corporate structure. The article disclosed a 2018 business plan "Tai Chi", the primary goal is to reduce the pressure brought by US regulatory and anti-money laundering regulations, and finally use the "Tai Chi" company as a shield to deal with US regulatory measures to help Binance in the US Carry out high-leverage cryptocurrency derivatives trading services.
The article believes that Binance’s transaction and acquisition manager and legal counsel Jared Gross and former employee Harry Zhou participated in the formulation of the “Tai Chi” plan, even suggesting that the FBI is involved in the investigation. The founder of Binance responded on Twitter that the "Tai Chi" plan was not written by current or former employees of Binance, and emphasized that Binance has always operated in accordance with the law, and then announced the prosecution of the Forbes reporter.
The incident has not completely stopped so far. Binance seems to have been warned and began to conduct a large-scale investigation of the US users of Binance Ball Station, requiring them to withdraw funds within 14 days and transfer them to Binance US trading with a compliant license. However, Binance stated that it announced in 2019 that it would not provide services to US users, and that regular investigations are the norm, and it does not target any incidents.
The derivatives trading mentioned in Tai Chi is currently a business that the US regulators are more concerned about. BitMEX, the world's largest professional derivatives exchange, has just been severely cracked down. Highly leveraged cryptocurrency derivatives trading services need to be registered with the US Commodity Futures Trading Commission (CFTC) and obtain relevant licenses. Since September 2015, CFTC has regarded cryptocurrencies as commodities in the U.S. Commodity Exchange Act and brought them into the scope of supervision, including cryptocurrency derivatives contracts.
According to the information on the CFTC official website, based on the registration licenses obtained by the Chicago Mercantile Exchange and the LedgerX cryptocurrency options exchange that have already listed bitcoin derivatives, the cryptocurrency derivatives trading licenses issued by the CFTC mainly include the following categories: Swap Trading platform (Swap Execution Facilities), derivatives clearing organization (Derivative Clearing Organization), designated contract market (Designated Contract Market). From the submission of the application by LedgerX to the official approval of each license, it took a total of 5-6 years, which shows the complexity and strictness of the application process.
What are the consequences of circumventing CFTC regulation? In October this year, the CFTC sued BitMEX for providing trading platform services without registration, providing illegal option services, failing to register as a designated contract market, etc., and violating relevant anti-money laundering regulations. Afterwards, BitMex executives were directly arrested, and the turmoil is still going on. This also indirectly aggravated the Forbes article's accusation of Binance's evasion of supervision.
It can be seen that the US subsidiary of Binance cannot legally get a share of the cryptocurrency derivatives field for the time being. But on the other hand, the derivatives service of Binance Global Station has begun to make great strides after being pessimistic. Multiple data show that Binance’s derivatives trading volume has ranked first in the world, with a 24-hour trading volume of more than 10 billion U.S. dollars. Such a large transaction If the amount is low, it may be inevitable that non-compliant users will slip through the net.
Different from BitMex’s attitude of always evading supervision, Binance has always embraced supervision, including the BUSD stablecoin being licensed by New York State; assisting the US Department of Justice to arrest Russian hackers, etc. Binance US holds money transfer licenses in several states in the United States (companies that provide payment services in the United States need to obtain money transfer licenses from various states, but the licenses are not issued for the cryptocurrency industry). However, the New York State BitLicense (the cryptocurrency trading license held by Genesis, a Grayscale affiliate company) and the registration license issued by the CFTC are missing from the licenses listed on Binance US.
Judging from the U.S. government’s crackdown on BitMEX, a large number of past violations have been traced: including providing services to hackers and Iranian customers; providing services to users without KYC; and treating U.S. regulations with a bad attitude. In contrast, Binance is more like a "good boy" of supervision, but as an emerging industry with a huge volume, if the US government attacks the industry's leading companies, Binance will also face risks.
In fact, Coinbase, the leading US exchange, is locked in a war with the US government. A few weeks ago, Coinbase, together with several cryptocurrency companies and investors, wrote to the Ministry of Finance to protest the upcoming regulations. Such a financial institution verifies the recipient or owner and collects relevant identity information before the owner of the non-custodial wallet receives the assets.
In addition to derivatives, another business of Binance that may be regulated by the US government is its platform currency BNB. In April 2020, the U.S. Southern District Court of New York received a series of class action lawsuits, alleging that Binance did not register its token (BNB) as a security, and that Binance did not register with the SEC as an exchange and brokerage trading service provider. Investors have not obtained sufficient information to understand that their investments carry significant risks inherent in their investments, as required by federal and state securities laws.
Although the above-mentioned Forbes hinted that the investigation by the FBI is likely to be groundless, what many people did not pay attention to is that in July this year, the US Securities and Exchange Commission (SEC) stated that it would authorize the blockchain analysis company CipherTrace to track Binance Chain transactions and BNB. The initial period of authorization is one year, and can be renewed for a maximum of 4 years later. Binance responded that the authorization aims to reduce illegal activities such as hacking and fraud. Why the SEC initiated this investigation and the progress of the current investigation has not been disclosed.
The legal supervision path of non-sovereign digital currency in the United StatesThe legal supervision path of non-sovereign digital currency in the United States》
in conclusion:
in conclusion:
First, Binance’s business expansion is extremely fast. Due to the tradition of U.S. regulators cracking down on financial giants in the industry and the vague rules of the cryptocurrency industry itself, there are no small risks from this perspective.
Second, Binance is very sensitive to U.S. regulation, responds quickly, invests heavily, and takes many measures to embrace regulation.
Third, the U.S. regulation is different from China’s. It operates more on “tracks” with relatively little uncertainty and room for negotiation. Unless it is completely confrontational, there will be tragedies like TELEGRAM or BitMEX. Binance may also face the problems of OKEx and Huobi, but the leaders are overseas, which at most will affect the business in China.
Fourth, for ordinary investors, there is no need to worry about the regulatory risks of Binance from the United States for the time being, but for Binance, the supervision from the United States will still be a matter of extreme importance both internally and externally. (Contributing author: Porcelain cici Editor: Wu Shuo Blockchain)
