New bombshell in the industry. Binance, the world’s largest cryptocurrency exchange platform, has settled accusations of violating U.S. sanctions and money transfer laws by paying a record fine of $4.3 billion. Its founder, Changpeng “CZ” Zhao, pleaded guilty to personal offenses and resigned as CEO, leaving the leadership to Richard Teng. The company was criticized for not implementing an effective anti-money laundering program and for operating without the proper license.

As part of this agreement, Binance must also appoint an independent compliance monitor for three years and report its compliance efforts to the U.S. government. This case highlights the regulatory challenges faced by major players in the cryptocurrency sector and marks a significant step in the U.S. government’s effort to regulate this rapidly expanding field.

In a blog post, Binance acknowledged the “resolutions” reached with various agencies, noting that the platform has worked to restructure in recent years and citing its “new leadership… with extensive experience in compliance.” “We are confident that Binance will emerge as a stronger company as we lay the groundwork for the next 50 years,” the blog post stated. Teng, the new exchange chief, indicated that Binance still has about 150 million users and thousands of employees. “My goal will be to: 1) reassure users about the financial strength, security, and safety of the company 2) collaborate with regulators to maintain high global standards that promote innovation while providing important protections for consumers 3) work with partners to stimulate growth and adoption of Web3,” he said in a tweet. Zhao mentioned that he might engage in passive investment or be a minority shareholder in various projects, as well as take a greater interest in decentralized finance (DeFi).

Important figures in the sector, like Paul Grewal of Coinbase, see this situation as an opportunity to strengthen the regulation of cryptocurrencies in the U.S., stating that this is necessary to ensure consumer safety and access to reliable cryptocurrency services. Brian Armstrong of Coinbase also supports this perspective, hoping that recent events will lead to clearer regulation. Others, like Chris Bakke, express skepticism, criticizing Binance and other failing cryptocurrency companies. Nevertheless, players like Erik Voorhees and cryptocurrency lawyer Carlo D’Angelo consider CZ’s departure and changes at Binance as potentially beneficial for the industry as a whole, suggesting a positive outcome despite the regulatory challenges and current controversies.

The implications of CZ’s resignation for the cryptocurrency market are obviously widely discussed. Some see it as a stabilization of the market and increased maturity of the industry, while others fear internal instability and increased regulatory pressure. The agreement with the DOJ could signal greater regulatory compliance across the cryptocurrency industry, reducing systemic risk and positively influencing the industry’s credibility. However, it could also lead to operational and leadership challenges for Binance, as well as increased regulatory scrutiny of other crypto entities.

Moreover, in this vein, the SEC, the U.S. securities regulator, recently brought new charges against the cryptocurrency exchange Kraken. This move comes shortly after resolving previous accusations against Kraken nine months ago. The SEC accuses Kraken and its parent companies of operating without the required regulatory registrations, further mixing client funds with those of the company, posing a significant risk of loss to clients according to Kraken’s audit. The SEC’s complaint classifies several cryptocurrencies as securities, including Cardano (ADA), Algorand (ALGO), Solana (SOL), and others. Gurbir S. Grewal of the SEC criticizes Kraken for prioritizing illegal profits over investor protection. Facing these accusations, Kraken defends its position, arguing that regulation through law enforcement hurts innovation and American competitiveness, and calls for legislative intervention to clarify regulation. Previously, the SEC targeted Kraken for its staking services, leading the company to settle for $30 million and to stop this service in the U.S.

This new saga has had only mixed effects on the markets. The market recorded a slight decline before quickly rebounding. Bitcoin is currently trading right in the middle of its present accumulation channel. The initial panic related to such news seems to quickly fade as evidently, the market is becoming more mature. Once the dust settles, as long as user funds on Binance remain safe, this news appears to be indeed positive for the industry.

Genesis Global Capital, a cryptocurrency lending player, has filed a lawsuit against Gemini Trust, a cryptocurrency exchange platform, to recover more than $689 million. This move follows preferential transfers that Genesis accuses Gemini of making at the expense of other creditors. This legal conflict is part of a broader context marked by the collapse of FTX and has led to a series of cross lawsuits between Genesis, its parent company Digital Currency Group (DCG), and Gemini. Tensions between these entities have intensified with various accusations, including allegations of selling unregistered securities by Genesis and Gemini, raised by the U.S. SEC, and a complaint by the New York Attorney General against DCG, Genesis, and Gemini for alleged fraud. The situation has become more complicated with massive withdrawals by Gemini before Genesis’ bankruptcy declaration, exacerbating its financial difficulties and leading to demands for repayment of previous loans, which Genesis considers avoidable and based on the belief that the company was insolvent.

Bittrex Global, once a very popular cryptocurrency exchange, is closing its operations following regulatory challenges, including shutting down its U.S. operations after a conflict and a $29 million settlement with the SEC. The platform, based in Liechtenstein, will cease all transactions on December 4 and is urging its clients to withdraw their assets. This decision reflects the growing difficulties faced by cryptocurrency companies in an increasingly strict regulatory environment.

Fidelity Investments, a financial services giant, has filed a regulatory application to launch an Ethereum-based exchange-traded fund (ETF). This filing follows a similar request by BlackRock for an Ethereum ETF. The proposed Fidelity Ethereum Fund aims to track the performance of Ether, the native token of the Ethereum blockchain network, and its shares would be traded on the Cboe BZX Exchange under the symbol ETHF. Fidelity, which manages over $11 trillion in client assets, has been developing its cryptocurrency business since 2018. This filing comes as the SEC faces increasing pressure to approve a spot bitcoin ETF, after approving bitcoin futures-based ETFs last year. Cryptocurrency proponents argue that a spot ETF would offer a safer way for traditional investors to be exposed to digital assets.

Bitcoin and Ether both continue to flirt with their highest levels of the year. There is no doubt that the hope for the acceptance of such ETFs plays a significant role in this. The SEC had an eight-day window last week to approve a Bitcoin ETF, but the regulator delayed its decision to approve or reject the ongoing applications. The date of January 10th remains highlighted in bright red for all market players.
Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of November 22nd, 2023, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.