Crypto Markets Plunge as Traders React to SEC’s Binance Complaint

Crypto Markets Plunge as Traders React to SEC’s Binance Complaint

 Published: June 7th, 2023

The price of Bitcoin fell sharply on Monday, 5th June, heralding an overall plunge in crypto markets after the US Securities and Exchange Commission (SEC) began enforcement action against Binance, the world’s biggest crypto exchange.

In the view of regulators, the company has ‘demonstrated utter disregard for American securities law.’ The SEC’s filing says Binance has 'illegally tried to convince US crypto traders to buy, sell, and trade digital assets’ which the SEC says are ‘securities’ under US law.

The agency’s lawsuit alleges that in December 2018, Binance’s Chief Commerical Officer (CCO) admitted the company was running afoul of US securities law.

‘We are operating a fking unlicensed securities exchange in the USA bro,” the executive (who’s name has been withheld) replied in an email to Binance’s compliance officer.

In a separate filing also made on 5th June, the SEC added several leading cryptocurrencies, including Solana, Cardano, and Binance’s own Binance Coin (BNB) to the list of securities that fall under its jurisdiction.

In total, the agency said 12 separate tokens being traded on Binance were classed as securities. Crypto market watchers have noted that most of the 12 fetch minimal volumes and depend on Binance for the lion’s share of their liquidity.

In terms of overall trading volume, Binance is a dominant force in global crypto trading. At time of writing, data from CoinGecko showed that more than USD 11 billion in trades had occurred in the 24 hours between Monday 5th June and Tuesday 6th June. That beats the volume achieved by Coinbase, Binance’s nearest competitor, by a factor of 10.

A litany of complaints

The world's leading crypto exchange has often failed to inspire confidence amongst regulators and even business partners. In May of this year the company announced it would end deposits and withdrawals in Sterling from 22nd May.

An email sent to exchange users on Monday, 13th March said the company’s payments processor Skrill, which provides Binance’s Faster Payments Service in the UK, has backed out of a deal to support GBP transactions.

At time of writing, new Binance accounts were restricted from making GBP deposits, though the company said in its email that current users would still be able to access their GBP balances until the May deadline.

According to Binance, the change affects less than one per cent of Binance customers.

It's not the first time the exchange has had difficulties accommodating trades in GBP.

Binance added its first Sterling trading pairs in 2020, ahead of the launch of its UK trading platform. At the time, British citizens could trade Pounds for crypto through the Binance Jersey subsidiary, an entity incorporated in the UK's Channel Islands low-tax jurisdiction.

But a year later, Britian’s Financial Conduct Authority (FCA) watchdog told the company it had to cease all 'regulated activities’ in the UK until it received written consent.

Between June 2021 and March 2022, Binance users were blocked from using GBP or EUR to fund their accounts. The exchange found a way around the restrictions by using PaySafe-owned Skrill as its UK fiat partner, and reintroduced Sterling and Euro transactions.

A Skrill representative told Bloomberg that the company has since decided that the UK regulatory environment for cryptocurrency transactions ‘is too challenging at this time’.

‘In an abundance of caution we've taken a prudent decision to withdraw from the Binance relationship.’

Paysafe, which trades on the New York Stock Exchange (NYSE), reported fourth quarter earnings last week. The company said it had processed more than USD 130 billion in payments in 2022, up seven per cent from the previous year.

Back in the spotlight’s glare

In a Reddit Ask Me Anything (AMA) session in May of 2022, Binance CEO Changpeng Zhao gave crypto traders investment advice and his take on de-risking crypto portfolios.

He said that most people need to diversify, ‘though I am not a good example.’

His holdings were (and apparently still are) spread between Bitcoin (BTC), Binance Coin (BNB), and other cryptos, but all on the Binance exchange. 'I use my Binance Card everywhere I go,’ he said.

The 40-something tech entrepreneur learned his trade designing trading systems for the Tokyo Stock Exchange and Bloomberg’s Tradebook derivatives trading platform. He launched Binance in 2017 and now holds around 30 per cent of the company. With a net worth of over USD 17.2 billion, Forbes magazine has him at number 19 on its ‘richest people in the world’ list.

Zhao, known colloquially as CZ, answered a number of questions about Binance’s business, including its decision to trade LUNA despite the coin’s collapse, how Binance handles custody of trader funds, and the development pipeline for Binance Chain.

Asked why Binance resumed LUNA trading after the network's validators halted trading when the cryptocurrency’s value fell to USD 0.00 on a few weeks earlier on 8th May 2022, he said doing so put pressure on validators to re-start activity.

‘We did suspend trading for a short time when the validators paused the blockchain, and even that had our complaints line buzzing,’ he added. ‘I do think our actions forced the validators to re-start activity on the network again, which happened within a few hours.’

The risk to traders was acceptable, Zhao maintained, because crypto markets are open and free of bias.

‘No one was forced to trade (LUNA) just because trading was available. There are always buyers with a high tolerance for risk. The marketplace is neutral.’

Asked about the centralized structure of the Binance Chain, Zhao said that having a low number of validators supports faster transactions. He also said he isn’t directly involved in most technical decisions but would raise the issue with the development team.

‘As I understand it we need to sustain a balance between the number of nodes and network performance as the blockchain evolves’.

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