By Michael B. Cohen
Vie President of Global Operations
MyChargeBack
Introduction
The recent crackdown on Binance, the world’s largest cryptocurrency exchange, has raised some serious questions about the accountability and transparency of the crypto industry. Binance has been accused of facilitating money laundering, tax evasion, and market manipulation by various regulators around the world, who have either banned or restricted its operations in their jurisdictions. How did Binance get away with such shady practices for so long? And what does this mean for the future of crypto?
Binance’s Genesis
Binance was founded in 2017 by Changpeng Zhao, a Chinese-Canadian entrepreneur who widely known as CZ. The exchange quickly rose to prominence by offering a wide range of crypto services, such as spot trading, futures trading, margin trading, lending, staking, and more. Binance also launched its native token, BNB, which gave users discounts on fees and access to exclusive features. Binance claimed to be a decentralized platform that operated without a headquarters or a single point of failure. However, this also meant that Binance had no clear regulatory oversight or compliance standards.
Regulatory Ambiguity
Binance’s lack of regulation allowed it to operate in a gray area where it could offer services that were prohibited or restricted in many countries. For example, Binance allowed users to trade derivatives with up to 125x leverage, which is extremely risky and can lead to huge losses. Binance also allowed users to trade anonymously without verifying their identity or source of funds, which opened the door for illicit activities such as money laundering and tax evasion. Binance also allegedly engaged in market manipulation by using its influence and resources to pump and dump certain coins, create fake trading volumes and manipulate prices.
Global Crackdown
Binance’s reckless behavior eventually caught up with it, as regulators around the world started to crack down on its operations. In June 2021, the UK regulator, the Financial Conduct Authority (FCA), issued a consumer warning against Binance, stating that it was not authorized to conduct any regulated activity in the country. The FCA also ordered Binance to remove all advertising and financial promotions by June 30. Shortly after, Japan’s Financial Services Agency (FSA) issued a similar warning against Binance, stating that it was operating in the country without registration. Other countries that have taken action against Binance include Germany, Italy, Thailand, Singapore, Canada, and the US.
Industry Dilemma
The crackdown on Binance has exposed the vulnerabilities and risks of the crypto industry, which has been largely unregulated and self-governed until now. The crypto industry faces a dilemma: either comply with the existing regulations and lose some of its innovation and freedom, or resist the regulations and face legal consequences and loss of trust. The crypto industry needs to find a balance between regulation and innovation, where it can protect its users and investors from fraud and abuse, while also fostering creativity and experimentation. The crypto industry also needs to hold itself accountable and transparent, where it can admit its mistakes and correct them, rather than hiding them or blaming others.
Wake-Up Call
The case of Binance is a wake-up call for the crypto industry and its stakeholders. It shows that crypto is not immune to regulation or scrutiny and that it needs to mature and evolve to survive and thrive in the long term. Crypto is not a lawless land where anything goes; it is a complex and dynamic ecosystem where rules and responsibilities matter.
