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Analysts' Insights

Analysts' Insights

The SEC is suing Binance – what it means

1) In April 2022, my previous boss led the $200m funding round into Binance.US, and a month later, we headed to the FTX conference in the Bahamas.

2) Those events gave me a front-row seat about the events to come, and I started writing the book ‘Crypto Titans: How trillions were made and billion lost in the cryptocurrency markets”

3) The SEC has filed 13 charges against Binance and its founder Changpeng Zhao (CZ), despite Binance’s efforts to settle any wrongdoing. The result will likely be billions of dollars in fines and Binance no longer serving US customers. This would be an unfortunate but expected development.

4) Everybody can read pages 166-179 in the ‘Crypto Titans’ book and judge the likely outcome for themselves.

5) The crypto industry will be fundamentally different as Binance has already taken various steps to prepare for such an event. Remember when Binance moved $1bn of BNB tokens into BTC and ETH a few months ago, remember when Binance stopped zero-fee for BTC crosses and volumes started to dry up – leading to Jane Street and Jump Crypto stepping back from market-making activities?

6) The SEC lawsuit is BIG and claims that Binance has earned at least $11.6bn in revenue illegally. But CZ as ‘a control person’, is liable, the statement reads. This could lead to DoJ implications for the firm’s founder.

7) Like FTX and Sam Bankman-Fried, the SEC also alleges that Binance and CZ commingled customer funds & sent them to CZ’s trading entity Merit Peak Limited. That entity was also used for other actions in combination with the Key Vision entity in Seychelles.

8) BAM trading later morphed into Binance.US lost several CEOs in short order, and the entity’s first CEO Coley already hired a former CFTC enforcement director & is now a partner at law firm Sullivan & Cromwell as her attorney in April 2021. It appears that she has testified and has fully cooperated with the SEC.

9) While this lawsuit is unfortunate, nobody should be surprised, & the outcome appears quite apparent…

10) Everybody must now watch the value of BNB tokens, assets on the Binance exchange and the perp discount for BNB tokens. The industry will be very different in a year. Trading volumes will likely drop further & pressure market makers’ revenue projections. Crypto in the US will continue to go through a nuclear winter.

11) The ONLY viable option for crypto firms might be Hong Kong, where the regulator appears willing to offer a licensed level playing field, risk-seeking multi-billion dollar family office investors keen to provide crypto entrepreneurs funding, & the greater Bay Area ecosystem provides access to talent.

12) If Hong Kong is indeed the first step for China to move back into crypto, then crypto will explode in Asia & the crypto industry can move on.

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