Binance, cryptocurrency market take costly hit from US SEC charges as licensing requirements tighten globally

The SEC filed 13 charges against Binance and its CEO, alleging the platform failed to protect investors, promoted unregistered securities, and mishandled customer funds

The market has been in what traders refer to as a ‘cryptocurrency winter’ since a series of company failures last year, most notably the bankruptcy of Binance rival FTX

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Published: 7:00am, 7 Jun 2023Updated: 10:19am, 7 Jun 2023

A US lawsuit charging Binance and co-founder Zhao Changpeng with selling unregistered securities, alleging that the world’s largest cryptocurrency exchange had a pattern of flouting regulations in pursuit of growth, is the latest sign of how regulators’ more muscular approach to policing virtual assets continues to affect the global market.

In the absence of cryptocurrency-specific legislation, regulation of virtual assets in the US has largely been left to financial watchdogs like the Securities and Exchange Commission (SEC) – which also charged Coinbase Global on Tuesday with operating an unregistered securities exchange – while markets as far-flung as Hong Kong and the European Union have rolled out specific rules requiring licences for exchanges. The result is that selling cryptocurrency without a licence is getting a lot harder in many parts of the world, and that is exactly what the SEC alleges Binance was doing.

On Monday, the SEC filed 13 charges against Binance entities, including Binance.com and its US-facing platform Binance.US, and Zhao, who is widely known as “CZ”. The agency alleged the platforms did not operate independently from one another as advertised, and failed to protect investors, promoted unregistered securities, and mishandled customer funds.

“The result will likely be billions of dollars in fines and Binance no longer serving US customers,” said Markus Thielen, head of research and strategy at cryptocurrency financial services firm Matrixport, adding that it would be an “unfortunate but expected development”.

“The industry will be very different in a year. Trading volumes will likely drop further and pressure market makers’ revenue projections,” he said.

The market has been in what traders refer to as a “cryptocurrency winter” since a series of company failures last year, most notably the bankruptcy of Binance rival FTX in November.

Excitement around a new regulatory regime in Hong Kong, which aims to turn the city into a virtual asset hub, has led to some hopes that it might contribute to a market rebound, but there has been little sign of that happening.

The cryptocurrency market tumbled by about 4 per cent the day after the SEC charged Binance, according to CoinMarketCap, while Binance Coin (BNB) dropped more than 7 per cent.