Are regulators paying attention to cryptocurrencies?

archyde 2021-07-11 11:07

Is Binance the new cryptocurrency kid? Regulators in the United States, United Kingdom, Canada, Japan, Thailand, and the Cayman Islands have recently issued warnings and even criminal complaints against the cryptocurrency exchange. Even Poland has entered the picture, as its financial regulator has warned citizens to exercise “extra caution” when using Binance trading services.

Some have opined that the company is solely to blame for this recent outbreak of regulatory heat, but others fear the exchange is the scapegoat for the entire crypto sector, which has grown too fast in the eyes of some authorities. On the other hand, Binance CEO Changpeng Zhao, known as CZ, felt compelled to address the “recent hyper focus on regulation when it comes to Binance” in a public letter.

Binance – founded in Shanghai in 2017 but with no publicly recognized headquarters today – has never been an example of compliance. “Binance has a history of trying to avoid regulation, while also making false statements about being regulated in some of these jurisdictions.“Dan Awrey, a law professor at Cornell Law School, told Cointelegraph, adding:”Binance, therefore, has placed the target firmly on its own back.“

Markus Hammer, a lawyer and director of the Hammer Execution consultancy, told Cointelegraph that Regulators merely reiterate earlier warnings, but they are now more widely noted.

“Warnings are usually a step before taking actual action“Like a ban on customers from using a certain platform, Hammer explained.”The other reason could be that they are now trying to distance themselves, as investors are preparing to take legal action on Binance Leveraged Tokens (BLVTs).“, which he described as a” flawed “financial product. He added:”A repeated warning that Binance is not regulated would free them from accusations of having been blind or inactive before“.

However, warnings alone can have consequences. When UK regulators warned in late June that Binance was operating without a business license, banking giant Barclays announced that would stop facilitating customer payments to the exchange, and the Santander followed suit a few days later.

There are no widespread withdrawals

But maybe it is not necessary to overreact? “Despite regulatory actions in all jurisdictions, there is no massive exodus of tokens from Binance as happened in 2017 in relation to the exchange’s previous crackdown on the land of China.“Winston Ma, adjunct professor at New York University School of Law and author of The Digital War: How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace, told Cointelegraph, adding:

“This shows that Binance has a global business and a decentralized operation, and the market was not too concerned about the recent actions of those countries.”

Unregulated crypto exchanges like Binance have long been viewed as exit ramps for money laundering and other criminal activities. In the course of 2019, Chainalysis tracking $ 2.8 billion in Bitcoin (BTC) that moved from criminal entities to exchanges, outlining that “a little over 50% went to the two main ones: Binance and Huobi”the firm said, with Binance alone accounting for 27.5%, the largest share.

Zhao suggested in his July 6 letter that regulation often lags behind innovation, especially with revolutionary technologies like cryptocurrencies: “The adoption and development of cryptocurrencies has many parallels with that of the automobile. When it was invented the car, there were no traffic laws, no traffic lights or even seat belts. ” Those came later. “With cryptocurrencies it is similar in the sense that it can be accessible to everyone, but frameworks are needed to avoid misuse and bad actors. […] Binance wants to be a positive contributor. “

Financial regulators are not necessarily looking to go after all crypto-companies, Awrey said. “The real problem is that many crypto exchanges don’t take customer protection or legal compliance very seriously.” Most exchanges don’t offer even basic private law protections, as documented in an upcoming book: “Against this backdrop, it is unrealistic to think that regulators will sit back and do nothing.”

It’s not necessarily bad for the cryptocurrency sector either. “Quite the contrary,” Carol Alexander, a finance professor at the University of Sussex School of Business, told Cointelegraph, adding: “We are all waiting for the space to be cleared of fraud and manipulation so that we can realize the true value of the currencies that are needed as gas for smart contracts, eg Ether, DOT, Cardano.” In addition, he has pointed out to Cointelegraph:

“The real problem with cryptocurrencies is not Bitcoin’s lack of fundamental value, but Binance and Tether [USDT]. These two companies are intrinsically linked because the majority of entries to Binance are in USDT. Without Binance, Tether’s market capitalization would be much less than $ 62.5 billion. “

The most immediate reason for the Binance crackdown, in Alexander’s view, is the spate of class action lawsuits on behalf of users “who lost everything on May 19 through self-liquidations during the futures platform outage. “, as well as BLVT’s “long maintenance mode after wild price swings, after which tokens opened hugely lower instead of going up in price.”

Growing protectionist sentiment?

In a recent post from LinkedIn, Hammer pointed out that many crypto exchanges operate around the world without licenses – but they don’t face the kinds of regulatory measures like Binance. “Therefore, it could be argued that the unspecified measures against Binance stem from simple anti-crypto protectionist reasons” – rather than “legitimate causes” like the BLVTs., for example.

Therefore, drawing attention to Binance could “be perceived as a bit arbitrary” as regulators are choosing “the largest of the black sheep,” he told Cointelegraph. Two countries that Hammer cited as possible embodiments of this protectionist sentiment were Japan and the United Kingdom.

Regulatory heat from countries like Thailand and the Cayman Islands probably won’t make Binance too upset, but what happens in China and the United States could be another story. “What matters most to Binance in terms of regulation will be China and the United States, the two largest cryptocurrency markets and also the two most powerful regulators.”, dijo Ma a Cointelegraph.

What if the United States took substantial legal action against Binance, or if China completely cut the link between its online crypto traders and overseas exchanges like Binance? “These are the focal points of the worldwide crackdown on Binance”Ma added.

Elsewhere, “I think Singapore will be enlightened because MAS has been signaling that it wants to become a cryptocurrency hub,” Awrey told Cointelegraph, referring to the Monetary Authority of Singapore, the central bank of the island’s city-state. . Consequently, if the MAS rejects Binance’s recent request to operate in Singapore, “this may be considered as a disclosure of private information about the risk profile of the firm.”

Binance seems to be aware of the stakes. In the letter from CZ, he further notes that “we have increased our international compliance team and our advisory council by 500% since last year.”, including the incorporation of former secretary Financial Action Task Force executive Rick McDonell as regulatory and compliance advisor, as well as former US Senator and Ambassador to China Max Baucus.

Should this be taken as a sign of good intentions? “Yes, indeed, it should,” Hammer replied. “They are taking it seriously: the stakes are very high. The problem really seems to be the lack of a regulatory framework, although I too would be careful with the numbers.“That is, Binance can claim that it has grown 500% in compliance since last year, but what is your starting point, a single compliance advisor? This is not specified.

Are New Regulatory Approaches Needed?

Others have suggested that nation-states are not really up to the task of policing decentralized, borderless businesses, although most consider Binance a centralized exchange, although its headquarters are difficult to locate. On this, Awrey said:

“Although many of the companies may be borderless and decentralized, most of their clients are not. This theoretically opens the door to forms of regulation and enforcement that many in the crypto community seem to dismiss.”

“The problem is not that there is very little regulation out there, but that – especially in the United States – there is a lack of taxonomy regarding cryptocurrencies and tokens, on which regulatory authority and what regulation should be applied for each case and situation.“said Hammer.

Europe, by comparison, is “quite advanced with the encryption of blockchain, DLT, and tokens, particularly Switzerland and Liechtenstein,” which have excellent legal and regulatory frameworks, Hammer said, while according to Alexander:

“We need to establish an international committee of cryptocurrency markets that meets every month and makes recommendations for their application in local rules and regulations – as the Basel Committee for Banking Supervision does with the Basel Accords.”

However, this may take some time, he allowed, “And there is nothing that forces countries that are thriving economically from trading crypto assets and derivatives – for example, Malta – to adopt these recommendations.“In short, the route is clear, but getting to the end point could still be arduous, as Alexander said.

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