Is Binance The Next Crypto Catastrophe?
Only Self-Custody Ensures Funds Are Safe.
Before the FTX collapse, a fierce battle was taking place in the shadows between the two top crypto exchange bosses, Sam Bankman Fried and Changpeng Zhao.
A battle for dominance, high volumes, and vast profit.
The winner was CZ and Binance, but perhaps the rewards did not sufficiently ensure Binance’s longevity as a market leader.
Regulators fiercely oppose cryptocurrency, as we witness even Coinbase being asked to restrict its business model and delist tokens the SEC dubbed unregistered securities.
The SEC charges against Binance is not the only problem CZ’s exchange is facing lately, as it faces a series of regulators scrutinizing its global business model.
The Fall Of FTX Got Regulators Busy
Usually, regulators regulate when something goes wrong, but rarely pre-emptively.
With everything in crypto, they can be sure they will never slack around.
Exchanges get hacked, DEXs rug customers, and billions are lost.
Exchange owners disappear, taking the keys with them.
Custodian re-lending schemes emerge and control funds worth dozens of billions of dollars but massively fail and go bankrupt all within the time frame of a couple of years.
Centralized stablecoin Tether reached a size of $80 Billion, backing the reserves with ‘trust me bro” Tweets and irrelevant attestations.
Crypto banks collapse overnight.
VC scammers pump centralized tokens to tens of billions of dollars and then go bankrupt while the leaders of the schemes survive and enjoy life in Dubai while planning their next crypto endeavor.
A single individual (SBF) hires two kids as quant analysts and promotes himself on social media as the ultimate trading guru that made billions from trading crypto, all in the 2018–2019 bear market. Then, somehow, this magician-trader creates the FTX exchange and transforms it into a multi-billion dollar business, only to declare bankruptcy within three years, mostly because of his trading failures and poor choices.
Justin Sun plagiarises Ethereum’s whitepaper and creates a centralized clone of Ethereum, convincing the world he is a top crypto persona to follow by purchasing a million followers on Twitter.
Binance, though? Where does it stand inside this crude and immature crypto ecosystem?
How Binance Became A Top Exchange
During the height of the 2021 bull run, Changpeng Zhao was probably the wealthiest person in crypto.
Infallible, undefeated, untouchable.
From his Twitter throne, the most recent King of crypto (since the era of Karpeles) was transmitting Tweets of wisdom expressing profound knowledge and insight as his vassals (bots and paid followers) religiously awaited his every tweet to rejoice.
However, crypto idols fall from grace way faster than in real life.
Cryptocurrency never needed CZ, Binance, Justin Sun, Arthur Hayes, Karpeles, or any other crypto philosopher.
This was never about them.
Binance appeared in mid-2017 and grew in popularity with the massive influx of newcomer investors between September and December 2017.
By offering better features, more coins, and a stable, smooth, and friendly user interface, Binance attracted users from exchanges with amateurish design and stability issues.
In 2018, Binance included derivatives and various trading options. It dominated trading volumes as most whale traders from once-powerful exchanges Bitfinex and Bitmex moved to Binance.
The Binance exchange expanded rapidly into all areas of cryptocurrency.
The exchange contained everything anyone would ever need.
Spot trading, futures, perpetual futures, a P2P exchange, staking, launchpad, various earning options, a native token (BNB), and most importantly, no KYC (until 2021).
Yet, it didn’t stop at the exchange features but branched out to encompass a range of other activities:
Mining: Bitcoin and other cryptocurrencies mining
Ethereum Clone Chains: BNB Chain (BNB Beacon Chain) and BEP2 and BSC Chain with BEP20 tokens expanding into a massive ecosystem with DEXs and tokens
NFTs Marketplace
Venture Capital Funding: Binance Labs
Various subsidies: Binance US, France, Brazil, and more
A complex structure of entities connected to Zhao and Binance exchange
Source: SEC Complaint
The valuation of this behemoth is unknown. Perhaps one hundred billion dollars (or more), although nobody knows (we don’t even know where the headquarters are).
The total market cap of the BNB token alone sits at $37 Billion.
Yet, all these billions are not backed by transparency, and when running a multi-billion dollar business, obviously the financial authorities will come knocking on your door.
Indications of a lack of transparency on the part of Binance surfaced when we discovered that the company was not headquartered in Malta, which is what Binance allowed everyone to believe until 2020.
A crypto company of the stature of Binance does not have a disclosed headquarters location, something we perceive as a red flag.
The South African branch of Mazars was conducting the auditing of Binance. However, after the 2022 collapse of FTX, Mazars decided to sever ties with Binance.
After a quiet year (after the collapse of FTX), we watch Binance striving to deal with pressure and regulatory scrutiny.
More Pain For Binance
Binance’s reliance on a maze of corporate entities to operate the Binance platform is deliberate; it is designed to obscure the ownership, control, and location of the Binance platform.
- CFTC Case: 1:23-cv-01887
We covered Binance’s legal battle with the SEC previously so we will not expand into these accusations against Binance.
Since then, the only positive news was Binance US reaching an agreement that allowed the exchange to keep operations running without having its funds frozen.
However, this is not the only issue Binance is facing, as more regulators appear to be taking a hard line against the exchange:
Before the SEC’s charges, the CFTC sued Binance and CZ for violating US trading rules (March 2023)
Binance was recently excluded from the Netherlands as it failed to obtain a license in a country where several other crypto exchanges achieved it (Bitstamp, Crypto.com, Coinbase, OKCoin)
France regulators initiated an investigation on Binance for money laundering (a report that CZ briskly called FUD).
Rumors emerge as the US DOJ (United States Department of Justice) is about to file fraud (criminal) charges against the cryptocurrency platform.
The Nigerian SEC announced on July 31st that all operations of Binance in this country are illegal.
BaFin (Germany’s Financial Authority) advised Binance to withdraw its license application (which Binance did on July 26th), further mentioning that the managing director (Changpeng Zhao) did not meet the standards of “professional qualification and good repute to manage an institution”. (source: Cointelegraph)
Brazil investigates Binance Brazil over breaking derivatives laws of the country and assisting a Pyramid scheme (March — June 2023)
A derivatives investigation was launched in Australia, with financial authorities visiting several Binance offices in the country to conduct searches (July 2023)
Binance has been rumored to fractionalize reserves by several cryptocurrency communities (including BTC, Bitcoin Cash, and Monero stakeholders).
In Conclusion
If all the above reminds us of anything, this is a series of exchanges and platforms controlling billions of dollars worth of cryptocurrency, only to collapse due to mismanagement.
Celsius, FTX, Genesis, 3AC, MtGox, and more crypto exchanges and custodians operated a similar model that only brought their demise.
Cryptocurrency users have a way out of all of these dangers.
Our duty as cryptocurrency writers is to warn and educate. Some of us did that with Celsius, and others warned about the rest.
Yet, many in this ecosystem forget to educate newcomers and never practice what they preach.
Self custody, control of the keys, decentralization, censorship resistance, and using our cryptocurrency is what matters. Anything else is mere speculation.
Crypto education begins with Satoshi’s whitepaper, where is written more than a dozen times that the focus is on eliminating the need for trusted third parties.
Actually, just read the whitepaper. It will save you a lot of trouble.
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In your opinion what CEX is safer for trading purposes? This alarms me since your warning with Celsius and other exchanges precisely happens.