Is Bitcoin Better Off Without CZ Helming Binance?
Binance, the world’s largest exchange, entered a landmark $4 billion settlement with the U.S. Department of Justice (DOJ) today that also has CEO Changpeng Zhao, known as CZ, stepping down and paying an additional $53 million to the feds.
The news comes amid a flurry of other industry shaking developments, and has prompted another storm of speculation—this one debating what it all means to the crypto market as a whole.
Too big to fail?
Since its inception in 2017, Binance has achieved a commanding presence in cryptocurrency, managing over $12 billion in daily transactions and supporting trading for more than 500 cryptocurrencies. With a user base exceeding 15 million globally and operations in over 180 countries, Binance holds approximately 40% of the global cryptocurrency exchange market share. Additionally, its in-house token, BNB, achieved a market cap of $40 billion just before the news about the settlement.
CZ’s impact on the cryptocurrency world is profound. Despite a decrease in his net worth, he remains a crucial figure both as a businessman and as a media personality. As the largest shareholder in Binance, CZ has significantly influenced the exchange’s growth strategy and the crypto market as a whole.
His recent efforts to align Binance with global regulatory standards marked a strategic shift in the company’s approach, which was somewhat opaque in previous years.
Now that he’s out as the world’s top crypto exchange finally capitulates to U.S. regulators, the crypto community is split on whether this is good for crypto and Bitcoin in particular.
Looking for the upside
1. Market stability and investor confidence
Many crypto investors and industry leaders see the settlement as a positive development. Resolving Binance’s legal challenges could mitigate a significant risk facing the wider market.
The settlement is “something that potentially Binance can handle,” Anatoly Crachilov, CEO of Nickel Digital Asset Management, said to Reuters. This sentiment is echoed by others in the industry, suggesting that the news could bring some stability to the volatile crypto market.
“This is an opportunity to buy BTC if it falls due to this news and the mistrust it generates among the masses,” Jaime Merino, a retail trader who runs one of the largest crypto trading YouTube channels in Latin America, told Decrypt. His strategy involves being fearful when others are greedy, and greedy when others are fearful. “There will always be news that causes the market to fall. Maybe today it’s CZ’s news, but others will come.”
2. Regulatory compliance and industry maturation
The settlement could also signal greater regulatory compliance within the wider cryptocurrency industry. As crypto exchanges like Binance face similar legal challenges and align with regulatory demands, the entire sector may be maturing, becoming more stable, and possibly attracting a broader base of institutional investors.
Some companies have already started to adapt. Alfonso Martel Seward, Head of Compliance at Lemon, an Argentinian crypto platform told Decrypt that the team made sure to increase its AML measures and improve its audit methods.
“Being in a market with little regulation, companies like ours find ourselves obliged to comply and figure out how to do so. In this regard, this industry has shown a high level of maturity, often exceeding what is normally expected,” he said. “At Lemon, among the various compliance and risk management programs we push forward, we not only have one dedicated to the prevention of money laundering but also one dedicated to user protection.”
Alfonso explained that the platform implemented a live reserve proof to provide users and authorities a real-time understanding of the exchange’s funds and movements.
Bitso, one of the largest exchanges in Latin America, also sees this event as positive in the long run.
“While these are turbulent times for the industry, they also represent an opportunity for Bitso. Our commitment to compliance and our proactive approach to regulation set us apart and will continue to be our guiding principles,” Daniel Vogel, the exchange’s CEO and co-founder told Decrypt. “We believe these recent events will positively impact the credibility of the industry and further encourage cryptocurrency adoption in our region.”
3. Systemic risk reduction
The resolution of the DOJ probe into Binance reduces the risk of a sudden collapse of one of the largest crypto exchanges, which could have had systemic implications for the crypto market, says Sui Chung, CEO of CF Benchmarks.
“Binance disappearing overnight remains a potential systemic risk to the crypto market,” Chung told Reuters. “But if there is a settlement, that won’t be the case… Any changes to Binance would be orderly.”
4. Another bullish signal
How does this development translate in terms of prices? Some analysts believe these types of events prove bullish in the long term. The most direct comparison would be to BitMEX and Hayes, which were also extremely influential and mediatic a few years ago.
Last time we had a mayor settlement was with Arthur Hayes in May 2020. Interesting what the price did after that. pic.twitter.com/ljCELARSHx
— xulian (@KingJulianIAm) November 21, 2023
A more pessimistic view
1. Internal instability
The settlement could bring about significant operational and leadership challenges for Binance. The DOJ has been pushing for broad changes at the top of the company, which might extend beyond CZ. Such shifts could impact Binance’s strategic direction and innovation, and potentially threaten its market dominance.
“If CZ steps down, Binance falls. They are on top because of CZ, and without him, people would look for other exchanges,” Merino told Decrypt. He’s not particularly bullish on the exchange’s future. “This is the beginning of the end for Binance if they don’t do something soon to regain investor trust and demonstrate financial solvency.”
As a common-sense safety measure, he recommended users“seek decentralization and move their money to cold wallets” as a precaution.
2. Financial and reputational burdens
The hefty settlement amount, while manageable, is still a significant financial blow. It also remains to be seen how this may hurt the exchange’s reputation and the overall confidence in the crypto market, especially among wealthier investors.
“The most serious problem is the loss of trust in Binance as an exchange,” Merino added. “I withdrew in January when they announced their partnership with the Digital Chamber of Commerce to work hand in hand with policymakers. Now they are seeing the results, and it’s very likely that Binance will lose the near-total control it had over the entire crypto ecosystem.”
“This is good for decentralization and reducing Binance’s power,” he noted.
3. Setting a precedent for regulatory pressure
This case represents one of the largest DOJ investigations into a cryptocurrency company, and could mean more stringent regulatory actions ahead. Following the FTX collapse and the conviction of its founder, the Binance settlement represents another historic resolution in the crypto world. This could lead to increased regulatory scrutiny and enforcement actions against other crypto entities, potentially altering the landscape of the industry.
According to Merino, exchanges should be worried but not consider it the end of the world.
“All other exchanges need to prepare, get their accounts in order, and distance themselves from the U.S. as much as possible,’ he said. “I never understood why Binance US never left there. All CEXs, you are next on the radar, but if your accounts are in order, there’s nothing to fear.”
All things considered, even though Bitcoin did experience a panic crash, the charts have not shown a major turn in the market’s sentiment, and the whole reaction seemed more like a correction than a crash or a bearish downturn.
The settlement allows Binance to continue operations, thus averting a potential market collapse. It is a significant step towards ensuring market stability and fostering investor confidence. However, the potential leadership changes at Binance, coupled with the financial and legal burdens of the settlement, could present operational challenges. These developments are critical for the crypto market, reflecting the shifting dynamics of cryptocurrency regulation and compliance.
Essentially, Binance’s settlement with the DOJ and the leadership changes represent a pivotal moment in the cryptocurrency market. The CZ era of crypto may be over, but at least investors, traders, and the broader financial ecosystem are not crying in fear—yet.
Marco Tulio Lanz helped with this report. Edited by Ryan Ozawa.