Table of Contents
- Binance’s Legal Woes Amplify Centralised Exchange Concerns
- Binance’s Proof-of-Reserves Fails to Reassure
- Frequently Asked Questions (FAQs)
Binance, the world’s largest cryptocurrency exchange, has faced a series of unprecedented legal and corporate challenges during 2023—the most recent of which involved the departure of Changpeng Zhao, Binance’s charismatic founder, after he pleaded guilty to US money laundering charges.
Zhao’s departure comes as part of a staggering $US4.3 billion settlement with US federal authorities. The comprehensive deal resolves accusations that the exchange conducted an unlicensed money transmission business, engaged in conspiracy, and breached sanctions regulations. Zhao has agreed to pay a $US50 million fine and step down from his role, with US prosecutors potentially seeking up to 18 months in prison.
This series of events comes after Binance voluntarily cancelled its Australian Financial Services License (AFSL) through its entity Oztures Trading Pty Ltd, ending derivatives trading in the Australian market.
It also came after the corporate regulator, ASIC, announced in February it was reviewing Binance Australia, after Binance said it had “misclassified some retail investors as wholesale”. ASIC views such mis-classifications as egregious because wholesale investors do not have the same protections as retail investors.
The implications of these changes are significant for crypto investors and the crypto industry as a whole. The shake-up at the helm of the company, and the oversight by a government monitor as part of the plea agreement, may prompt a heightened level of scrutiny and compliance in the company. This could lead to a shift in the operational dynamics of the exchange, potentially impacting Australian investors who are part of the global user base that Binance serves.
Richard Teng, a senior Binance executive, has been appointed as the new CEO, taking over the reins to guide the exchange through its next phase focused on security, transparency, compliance, and growth.
Many are hopeful these changes will lead to a better-regulated, safer market for all players in the industry. The direct oversight by the US government could pave the way to clearer regulation for crypto exchanges worldwide, which would be a positive outcome.
Despite these challenges, Binance still commands a significant share of the global crypto trading volume. However, this legal settlement, coupled with the leadership change, marks a turning point for Binance and serves as a stark reminder of the regulatory pressures facing the crypto industry worldwide.
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Binance’s Legal Woes Amplify Centralised Exchange Concerns
The crypto market’s apprehension towards centralised exchanges has intensified after the legal developments at Binance.
The growing concerns reflect diminishing trust in centralised exchanges following a series of industry scandals throughout 2022. Recent headlines have focused the market’s worries squarely on Binance, which is one of the largest players in the crypto market. While some investors continue to keep their digital assets on centralised exchanges, many have chosen hardware wallets.
Casting the biggest shadow is the shockingly rapid collapse of FTX. In a matter of days, FTX went from one of the leading crypto exchanges (just like Binance) to bankruptcy after reports emerged that it had been using client funds to prop up its sister trading firm, Alameda Research.
In a move reminiscent of Zhao’s tweets in January, FTX CEO Sam Bankman-Fried had tweeted in November that “FTX is fine. Assets are fine” and “we don’t invest client assets even in Treasurys (sic)”.
FTX filed for bankruptcy on November 11—within days of those tweets—which Bankman-Fried has since deleted. The disgraced former CEO was arrested in the Bahamas and was convicted of federal criminal charges. He will be sentenced early next year.
However, the latest developments with Binance could have a positive flip-side for the regulation of exchanges. The US government will appoint a watchdog to keep an eye on the exchange and ensure it remains compliant moving forward. This is a positive step for the crypto industry and represents a move toward clearer regulation for those centralised crypto exchanges trying to do the right thing.
Binance’s Proof-of-Reserves Fails to Reassure
In the aftermath of the FTX collapse, Zhao has pushed for more transparency, insisting that crypto exchanges present proof-of-reserves on a blockchain to assure customers that their assets are backed.
Binance has presented assets in an on-chain wallet, but there are plenty of outstanding questions about how much this actually tells investors.
For instance, critics note that Binance’s liabilities are not transparent. Without a clear accounting of the firm’s liabilities, it’s impossible to come to an informed decision about a company’s financial health.
Zhao has commented that it is harder to present liabilities, and asserted that Binance does not owe loans to anyone. Despite attempts at more transparency, Binance still operates in an opaque manner compared with traditional financial entities.
Incidents such as the USDC withdrawal pause only serve to back this up. While this was for legitimate reasons and turned out to be nothing ominous, the fact of the matter is that investors are forced to rely on tweets from CEOs on Twitter that are all above board.
Given the painful memories of Bankman-Fried’s deception, it is easy to understand their fear—despite nothing of substance suggesting that funds are not safe with Binance.
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Frequently Asked Questions (FAQs)
Is Binance legal in Australia?
Yes, Binance is legal in Australia. The company is based internationally, but operates an Australian arm under InvestByBit Pty Ltd (ABN 98 621 652 579). The company which is registered with AUSTRAC, which detects and prevents fraud, but that does not mean the exchange, or any other exchange in Australia, is regulated. The Federal Government is working on legislation to regulate the industry, including exchanges, after a series of scandals.
Can you futures trade on Binance?
The short answer is no. In 2021, the Australian Government, banned Binance from offering crypto futures and options in their market to mum-and-dad retail investors. It issued an edict to Australians who have invested in futures, options & leveraged tokens on Binance to close their position within 90 days.
Is Binance taxable in Australia
Yes. If you are trading or investing in crypto then there are tax implications. The federal government considers crypto investments to be assets so they fall under the Capital Gains Tax (CGT) umbrella so you may need to pay CGT on the sale of crypto. You may also have to pay income tax on any crypto earnings, but this amount depends on whether you are classed as a trader or an investor. Speak to your accountant for advice.
Can I trade in AUD on Binance?
Yes, you can deposit AUD via PayID on Binance Australia and then, once your account is verified, you can start spot trading.
Is it safe to invest in Binance now?
Investing in cryptocurrency exchanges, including Binance, carries inherent risks. The recent guilty plea and leadership changes at Binance highlight the importance of regulatory compliance in the industry. While Binance is taking steps towards strengthening its security, transparency, and compliance, investors should conduct thorough research and consider the evolving regulatory landscape when making investment decisions.
What did CZ plead guilty to?
Changpeng Zhao, commonly known as CZ, pleaded guilty to charges of breaking US anti-money laundering laws. This is part of a broader $US4.3 billion settlement that resolves a multi-year investigation into activities at Binance by US authorities, covering unlicensed money transmission, conspiracy, and breaching sanctions regulations.
