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The Crypto Behemoth Faces 'FTX Redux' Fears As Us Regulators Blast It - But Analysts Believe It Can Survive

March 19, 2023
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Binance, the world's largest cryptocurrency exchange, is going through one of its most difficult periods since it was created in 2017 by Changpeng Zhao and He Yi.

Struggling on many fronts, the digital-asset behemoth is facing a slew of US regulatory investigations while simultaneously attempting to restore investor trust eroded by the so-called crypto winter and a spate of high-profile bankruptcies and scandals in the sector.

Concerns have been raised about whether Binance faces similar dangers following the spectacular downfall of Sam-Bankman Fried's FTX late last year. Enter 'Binance' into search analytics tools such as AnswerThePublic and they throw up a plethora of searches such as "will Binance collapse like FTX" "can Binance be trusted", or even "Binance is next".

The company is now facing legal and regulatory investigations for suspected anti-money-laundering violations, as well as issues about whether it properly registered several crypto derivatives. The questioning comes as regulators tighten their grip on the crypto business in the aftermath of FTX's bankruptcy.

Fears about 'FTX redux'

Binance is "FTX redux and an enormous bank run looks probable," according to John Reed Stark, a former US Securities and Exchange Commission attorney. Yet, cryptocurrency specialists need to be more concerned about Binance's future.

Notwithstanding the recent setbacks, Alex Svanevik, CEO of crypto analytics firm Nansen, and Marcus Sotiriou, an analyst at digital asset brokerage GlobalBlock, voiced confidence in the exchange. Despite the government crackdown and market volatility, Binance has proven robust, according to Tom Wan, a research analyst at 21Shares.

"I don't think Binance will be the next FTX; they've been more upfront about consumer deposits than FTX ever was," said Nansen's Svanevik.

Binance's $65 billion in reserves, according to Svanevik and GlobalBlock's Sotiriou, is an indication that the firm is in good form.

"I believe Binance is here to stay and has built an empire that will be difficult to dislodge," Sotiriou added. "Despite worries about Binance's openness, such as the lack of corporate governance, headquarters, a CFO, and a renowned auditor, there is enough evidence for me to anticipate that they are adequately financed, if not 100% solvent," he continued. A Binance spokeswoman told Insider via email that the exchange has never invested or "otherwise deployed" customer assets without their authorization.

"Binance holds all of its clients' assets in segregated accounts that are identified separately from any accounts used to hold Binance assets; it's also important to note that our users can withdraw their funds whenever they want - as has been demonstrated time and time again," the spokesperson added.

'Regulatory inspection gauntlet'

While the exchange is unlikely to face existential challenges, it will continue to face pressure from authorities and customers demanding greater transparency, according to Robert Le, a crypto analyst.

"We believe that after FTX, the regulatory environment will be much less favorable for Binance and that they will face significant regulatory pressure across multiple jurisdictions, which means that the company will not only face substantial financial penalties, but also the possibility of being forced to exit certain markets, restructure, or completely segregate its various businesses," Le said.

OANDA senior analyst Ed Moya maintains a similar viewpoint.

"Binance is going to go through a severe gauntlet of regulatory examination into its finances, operations, and compliance. The scrutiny will be unrelenting and perhaps catastrophic for Binance.

"It looks that Binance will have a difficult time operating in the United States," he told Trade Algo.

According to a company representative, Binance is strengthening its compliance infrastructure by investing in associated technology and people resources.

Here are five instances in which the crypto behemoth has been chastised by authorities or politicians.

A bungled scheme to avoid US regulators

According to a recent Wall Street Journal investigation, Binance devised a strategy years ago to avoid attention from US regulators as officials hinted at their intention to crack down on crypto firms operating abroad.

Binance.US was established in 2019 as part of the aim to build a US company that was completely independent of Binance's worldwide activities. Binance.com, which was founded in 2017, had mostly functioned in a free-floating manner out of hubs in China and Japan, leaving it outside of regulatory scrutiny.

According to the Trade Algo, the strategy was problematic because the two platforms were more intertwined than was previously revealed. They shared employees and funds, and they even shared a cryptocurrency corporation.

If US authorities determine that the linkages indicate the crypto exchange has authority over the US platform, the corporation may face enforcement action.

Customer funds

Binance is also addressing concerns about how it handles user funds, following claims that it exploited customer assets for its purposes, such as FTX. According to Forbes, which examined on-chain data from August 17 to early December, the exchange shifted $1.8 billion in stablecoin collateral to hedge funds, leaving its investors vulnerable.

While the financial transfer is not unlawful, it may represent a danger to Binance's investors. For example, Sam Bankman-Fried reportedly misappropriated more than $8 billion in client cash by shifting FTX deposits for activities at its subsidiary trading business Alameda.

Secret transfers 

According to TradE Algo, Binance surreptitiously transferred $400 million from its American partner to Merit Peak, a business run by the crypto giant's CEO Zhao.

Binance maintains that Merit Peak and Binance.US, the exchange's American partner, operate independently of the exchange.

According to Trade Algo, the moves were "unexpected" by Binance US's previous CEO Catherine Coley.

Unregistered securities 

According to Trade Algo, Binance's US branch has also come under fire after an SEC official stated that the company is running unregistered securities in the US.

The allegations have hampered a $1.3 billion transaction between Binance.US and the struggling cryptocurrency business Voyager, in which the former wanted to acquire the latter's assets. In a snub to the SEC, Voyager later gained clearance to sell its assets to Binance.

The SEC has cracked down on prominent cryptocurrency businesses like Gemini, Genesis, and Kraken for running assets that have not been approved by US regulators.


In another SEC intervention, crypto company Paxos was told to stop minting Binance's dollar-pegged coin BUSD because it was deemed unregistered security.

This happened after the regulator filed a lawsuit against Paxos for providing BUSD to its clients.

According to Trade Algo, BUSD is the world's third largest stablecoin behind Tether and USD coin, with a market worth of more than $8.2 billion.

"There are many unknown unknowns to leap to conclusions on Binance's; nonetheless, the coming months will be critical to get greater transparency and clarity on Binance's overall financial health in light of the recent regulatory obstacles," 21Shares' Wan told Trade Algo.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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