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Binance in the Eye of the Storm: SEC’s Damning Allegations Unveiled
The US Securities and Exchange Commission (SEC) has filed a 13-charge complaint against Binance, the world’s largest crypto exchange and its founder, Changpeng Zhao. The charges allege a series of securities law violations, including manipulative trading practices that artificially inflated Binance’s trading volume. The SEC claims that Binance and Zhao had the liberty to “divert customer assets as they please” to another Zhao-owned business, Sigma Chain, and concealed the commingling of billions of dollars of customer assets, which were transferred to yet another third party, Merit Peak Limited, also owned by Zhao.
The SEC’s charges paint a picture of an “extensive web of deception, conflicts of interest, lack of disclosure and calculated evasion of the law,” according to SEC chair Gary Gensler. The allegations suggest that Binance sidestepped geo-restrictions to allow US users to trade on its international platform and misled investors about risk controls supposedly in place to protect against manipulative practices like “wash trading.” The SEC alleges that such practices were commonplace on Binance.US.
The charges against Binance are seen as “very serious” by industry experts, indicating a “complete lack of internal risk management and controls necessary to operate a business that handles billions of dollars of customer funds,” says securities attorney Aaron Kaplan. The likely outcome, he suggests, is that Binance will be pressured into ceasing operations in the US. Furthermore, the extensive allegations set the stage for potential criminal action against Binance’s top leadership.
The SEC’s complaint against Binance marks a significant shift in the crypto ecosystem, signalling the end of a freewheeling era and the beginning of regulation under securities laws. This “maturation” process is seen as necessary and occurs in every industry. The charges against Binance are a stark reminder that the time for crypto exchanges to register under securities laws has run out. Read more here.
The lawsuit alleges that tokens traded on the Binance exchange, including Binance’s (BNB) and (BUSD), Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS), and COTI, were securities. Notably, all these tokens are currently experiencing a downward spiral in their market prices, each due to their own concerns or problems. Read more here.
Also see our related article: Crypto exchanges like Binance face Australian banking headwinds
Breaking News: Binance Faces Unprecedented Withdrawals Amid SEC Charges: A Crypto Exodus in the Making?
In the wake of the U.S. Securities and Exchange Commission (SEC) lawsuit against Binance and its CEO Changpeng “CZ” Zhao, the crypto exchange is witnessing a significant outflow of funds, the highest since the banking crisis in March. Blockchain data reveals that Binance experienced net outflows of approximately $503 million on Monday alone, according to a Dune Analytics chart by crypto investment product provider 21Shares. During this period, traders have withdrawn over $1 billion of digital assets, compared to $546 million in deposits.
This withdrawal surge is set to be the largest daily net outflow since mid-March 2023, a period marked by investor concerns about the potential destabilisation of crypto exchanges due to failing crypto-friendly banks. Crypto intelligence firm Nansen’s data showed that Binance recorded $231 million more withdrawals than deposits within a one-hour period following the news about the lawsuit, excluding bitcoin (BTC) transfers.
However, it’s worth noting that while outflows are increasing, this isn’t necessarily an anomaly. In February, Binance weathered approximately $830 million of net outflows over a 24-hour period as New York state regulators cracked down on Binance-related stablecoin BUSD. According to Nansen data on exchange reserves, Binance’s crypto wallets still hold around $55 billion of digital assets despite the current outflows. Read more here.
Refresher: The Other Side—Traditional Financial Titans Enter Crypto Arena: A Safer Alternative to Current Exchanges?
In the wake of the SEC’s scathing charges against Binance, a new trend is emerging in the crypto market. As we recently covered, renowned financial institutions, including Standard Chartered, Nomura, and Charles Schwab, are strategically moving into the crypto space. Despite recent market turbulence, these firms are betting on the long-term viability of digital currencies like Bitcoin and Ether, spurred by their unique value surge this year.
These institutions are creating or backing new companies to offer trading and safekeeping services for digital currencies. Their entry into the crypto market is seen as a strategic move to provide a safer, more familiar alternative to existing crypto exchanges such as Binance and Coinbase. The goal is to attract fund managers who prefer to work with regulated, trusted institutions for their crypto transactions.
This shift could potentially reshape the crypto landscape, offering investors a more secure and regulated environment. However, it also underscores the increasing scrutiny and regulatory pressure existing crypto exchanges face. As traditional financial institutions enter the fray, the crypto market is poised for a significant transformation, marking a new chapter in its evolution. Most of the current prominent crypto exchanges that existed during the crypto wild west era will need to adapt or die. Read more details in our recent coverage here.
Stay Tuned for Zutopia: A New Dawn in P2P Marketplaces
The recent newsletter update from Zucoins L.P. publicly announces the development of Zutopia, a peer-to-peer (P2P) marketplace platform, developed in conjunction with Smith Brothers Media. This initiative represents a significant leap forward in the evolution of decentralised marketplaces, offering users a unique platform to trade Zucoins and related products built on the Splitchain Layer 1 native protocol.
Zutopia will allow users to buy and sell directly amongst themselves. This direct access to a truly global marketplace is a game-changer, enabling instant fund transfers via MasterCard and Visa cards, leveraging Zubot’s superior transaction settlement speeds.
A key undertaking of Zutopia is in its commitment to user safety and autonomy. The Zutopia P2P marketplace project has a unique strategy, joining forces with specialised partners so any transaction intermediaries should not need to hold any Zucoins or user funds in escrow during the transaction process. When combined with Splitchain’s in-built two-factor authentication, this approach ensures that users maintain control over their assets during the transaction, reinforcing the platform’s commitment to decentralisation and user empowerment. Zutopia aims to thoroughly improve upon the P2P marketplace landscape, offering a more reliable and direct trading platform. We’re looking forward to providing more info as it becomes available.
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All the best,
Peter
MyZucoins