Why Binance’s US Plea Agreement Could Be Positive for Crypto Adoption

Many have predicted that Binance will never receive regulation – it will pretend to be compliant in jurisdictions like the United States.

no more.

Binance's guilty plea to money laundering and other federal charges on Nov. 21 means giving up its free spins. It will pay a $4.3 billion fine, the largest in U.S. Treasury history.

Moreover, Binance founder, CEO and principal owner Changpeng “CZ” Zhao – considered by many to be the most powerful individual in crypto – will be sidelined from the company for at least three years after a court-appointed regulator was appointed.

Today I step down as the CEO of Binance. It wasn't easy to let go emotionally. But I know it's the right thing to do. I made a mistake, and I have to take responsibility. This is great for the community, Binance and myself.

Binance is no longer a baby. is it…

— CZ BNB (@cz_binance) November 21, 2023

But those may not even be the most important effects.

“The settlement is much bigger than that,” Milton R. Underwood Chair Yesha Yadav, a law professor and associate dean at Vanderbilt University School of Law, told Cointelegraph.

“The monitoring agreement will bring some strategic control to Binance, marking the end of the era when the exchange seemed relatively borderless, without a headquarters and without a central local regulator.”

Binance will face more scrutiny than it has in the past “on its products, risk management, governance, business partnerships and compliance,” Yadav continued, and the exchange will likely undergo major structural reforms to put it on a more compliant footing.

Binance's settlement with the US Department of Justice (DOJ), Treasury Department and Commodity Futures Trading Commission (CFTC) should have industry-wide ramifications – and not necessarily negative ones.

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Austin Campbell, a Zero Knowledge consultant and assistant professor at Columbia University's business school, said the deal is a “long-term positive” for the cryptocurrency and blockchain industry. He told Cointelegraph.

“This is a recognition that crypto is here to stay, and people should have access.”

Arguably a momentous event for the industry, since the stateless Binance is the world's largest cryptocurrency exchange and at times handles two-thirds of all digital transactions, Zhao, who reached a separate plea deal, is widely seen. The landscape of the industry, especially after the fall of FTX's Sam Bankman-Fried.

“We'll find you.”

“Only the US, with a proven and unique legal framework, can do this. The signal to the crypto world couldn't be clearer,” Swiss-based lawyer Markus Hammer, principal of consulting firm HammerExecution, told Cointelegraph.

“If you're talking to US users and you're actively involved in money laundering and US sanctions in the crypto business, we'll find you. Including your CEO, and even if you don't have a headquarters.'

However, Binance may not be completely out of the woods when it comes to US federal fees just yet. Separately, the SEC filed 13 charges against Binance in June, and those cases have not yet been heard. Moreover, these charges are “much broader than the charges filed jointly by the DOJ, CFTC and Treasury,” Carol Alexander, professor of finance at the University of Sussex, told Cointelegraph.

Binance has evolved into a multifaceted organization, Alexander observed, beyond its exchange functions. For example, it has an unbeatable market position, and conducts market innovation activities through two companies controlled by Zhao: Merit Peak and Sigma Chain.

The SEC charged Binance and Zhao with pooling client assets in these market-making firms and using those client assets as their own, similar to what FTX did before the collapse. It will take some time before these latest issues come to fruition, however, Alexander explained.

Are they paving the way for crypto exchange-traded funds (ETFs)?

Still, the DOJ plea deal appears to offer some relief to the crypto sector. Some feared that the government might try to put Binance out of business, and feared global consequences due to the company's ubiquity. Therefore, the settlement, in this view, has eliminated a large “excess” in the market.

Binance has been the biggest typical stack on this market for the entire past year. Looks like we're finally getting some resolution on it.

Markets hate uncertainty and love clarity and resolution.

Same vibes with Bitmex quality in 2020.

— Will (@WClementeIII) November 20, 2023

“I see the transparency now being provided by the authorities regarding the deal as very positive for the crypto industry,” Hammer said. “Also for A [U.S.] A BTC spot-market ETF that could launch in January 2024, and possibly an ETH Spot ETF later in the year.

Others saw the settlement as another sign that the industry was maturing and moving on from its crash roots.

According to Campbell, the Binance of 2018 is very different from the Binance of today. It has evolved from what he calls an “escape piracy enterprise” to one that “actually has KYC/AML programs and risk experts in some jurisdictions.”

“Binance has been committed to getting it right for some time,” Campbell told Cointelegraph, citing people like Richard Teng – named as Zhao's successor as CEO – and Noah Perlman, chief compliance officer, as examples of growing severity vis-a-vis. and regulation. The DOJ settlement is “just one step down that road.

Just as the early pioneers of the Internet were finally integrated into the mainstream market and economic system, “crypto is coming into the fold,” Truflation founder and CEO Stefan Rust said in a statement last week. “Full regulation and taxation are here now.”

Zhao himself seems to have seen the shape of things coming back in 2021, saying in a public letter that regulation often follows innovation, especially in revolutionary technologies like crypto. “The adoption and growth of crypto has many parallels with the automobile. When the automobile was first invented, there were no traffic laws, traffic lights, or even seat belts. Those came later.”

Allowing Binance to survive?

Some have read into the DOJ settlement the US government's decision not to put Binns out of business. Campbell said:

“One of the biggest negatives [crypto] There were regulators in place and accepting the goal of a crypto ban for the United States. This is quite the reverse: the settlement is clearly about the continued existence of Binance.

According to Yadav, “A revamped Binance could benefit the crypto industry as a whole by providing a source of private standard setting and representing a more mature and prudent organization to the world.”

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Maybe that goes too far. Binance had been eroding its dominance in the industry before the deal, and that trend may continue, especially as the SEC case continues to loom large with broader charges.

Binance may also lose market share over time as risk-seeking investors flock to smaller offshore exchanges, Yadav said:

“However, this settlement gives Binance a way to reflect its image as a risk-tolerant company that has gained market share by pursuing customer purchases at all costs.”