Binance, the largest global crypto exchange, has been hit by a raft of regulatory challenges worldwide that only seem to increase.
It's the biggest example of what worries regulators in crypto: unfettered investor access to a range of digital tokens finance officials have never heard of, without the traditional investor protections of regulated markets.
Binance is the largest global exchange, doing $27 billion in spot exchange volume over 24 hours as of Tuesday, on a down day in the market, making it much larger than rivals such as Coinbase.
Binance has grown due to its focus on being the place for crypto enthusiasts to trade almost any digital asset, investors say. While many exchanges operating in the U.S. such as Coinbase take time and have a process for adding coins for trading, Binance has aggressively added new cryptocurrencies and more recently NFTs. That long tail is appealing to investors looking to speculate on the hot new crypto thing.
Originally founded in China, Binance reportedly pulled its employees and any official presence out of the Chinese market in 2017 after China banned ICOs.
But Binance has launched quickly around the world in many countries. Regulators in many of those countries have said Binance is operating without permission.
Where it's under fire
- Regulators at the Commodity Futures Trading Commission are looking at whether Binance engaged in insider trading or market manipulation by "trading on customer orders before executing them", according to Bloomberg. Binance denied any misconduct.
- The Justice Department and the IRS are also reportedly examining Binance's role in money laundering and tax evasion.
- The Financial Conduct Authority said Binance's U.K. affiliate was operating without approval.
- Japan's financial agency warned the company for operating without permission.
- Binance in July said it would suspend deposits from the European Union's Single Euro Payments Area network.
- Binance earlier this year launched stock tokens, a sort of synthetic instrument that gives commission-free exposure to traditional stocks such as Apple and Tesla. The tokens were being offered through CM-Equity AG, an established company that would hold the underlying stocks.
Germany's financial regulator said the tokens would violate European Union securities laws. In July, Binance said it would no longer offer the tokens, though CM-Equity's CEO told the Block that it was a "business decision" and Binance wasn't forced to stop.
- Thailand's financial agency in July filed a criminal complaint against Binance, accusing it of operating a digital asset exchange without a license.
- South Korean regulators did not publicly come after Binance, but they did warn crypto exchanges to register. Binance shut down Korean language support and Korean-currency trading pairs in August.
- Malaysia's financial regulator took an enforcement action against Binance and ordered it to stop operating in the country. In August, Binance shut down access in the country.
- Though Binance has largely moved itself out of Beijing's reach, China's continued tightening of crypto trading rules inevitably affects customers in the country who might try to use the exchange.
The mystery of Binance's headquarters
The global troubles raise a question: Where is Binance? The company has long said it doesn't have a headquarters, preferring to be a decentralized company, a structure inspired by the headless nature of cryptocurrencies. But regulators have been skeptical of that stance. Now Binance appears ready to set down roots — though where is still not clear.
"Four years ago when we started it, we wanted to embrace the decentralized model so we wanted to have decentralized teams everywhere. But we do run one centralized exchange, which is the biggest part of our business. Now we have come to realize that for the regulators, we need to be centralized," CEO Changpeng Zhao said in a recent interview with the Block..
In 2019, Binance said it would stop allowing U.S. users to access the exchange. But it wasn't until last November that Binance blocked U.S. users from accessing Binance.com, its main site. It moved those users to Binance.US, which is run by a separate company, BAM Trading Services, and has a much smaller selection of tokens.
The moves came after another crypto exchange, BitMEX, was charged by the CFTC and Justice Department with violations of know-your-customer rules, among other laws.
Forbes reported last year that Binance had an elaborate plan to avoid U.S. regulation through a U.S. based entity and evasion of "geographical restrictions" through "technical workarounds" — charges which Binance denied.
Crypto traders in the U.S. or other regulated jurisdictions have long known that it's possible to use a VPN to access Binance, according to crypto investors.
Moreover, crypto's global market makes the company less concerned about regulatory pressures in the U.S.
But the uncertain regulatory landscape appears to have contributed to churn in its top ranks. In August, Binance.US CEO Brian Brooks, former head of the Office of the Comptroller of the Currency, quit after three months on the job, citing strategic differences. Binance named Brian Shroder, previously of Ant Group and Uber, as president of Binance.US in September.
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