The crypto market took a tumble on Monday, which is continuing today after the US Securities and Exchange Commission (SEC) sued the world’s largest crypto exchange Binance for allegedly running an illegal operation in the US.
As the price of Bitcoin dropped under $25,500 and Ether below $1,800, BNB lost more than 11% of its value as it fell to about $272. It marked BNB’s biggest one-day drop so far this year. Meanwhile, the total crypto market cap has recorded a drop of 3.8% to now stand at $1.135 trillion.
BNB is the 4th largest cryptocurrency with a market cap of $43.7 billion and has been managing over $1.5 billion in 24-hour trading volume.
Not just tokens but shares of crypto-related stocks also got hammered in tandem with the broad market losses.
The shares of the largest crypto trading platform in the US, Coinbase (COIN), dropped more than 10%. The publicly traded company itself received a warning from the SEC earlier this year in March that it may also receive enforcement action related to the listing of potential unregistered securities.
Since then, Coinbase has been expanding its presence in other countries, such as Canada. CEO Brian Armstrong has also been meeting with the Abu Dhabi and Dubai regulators. According to Armstrong, these places have clearer rules for crypto firms than the US, making it easier to operate there.
Coinbase then argued back in April that the SEC’s move undermined its own role as the monitor of companies registering to sell shares to the public. The trading platform has also requested a court to compel the agency to respond publicly to their petition from July 2022 asking for clearer crypto regulation guidelines.
Meanwhile, on Monday, Paul Grewal, chief legal officer of Coinbase, tweeted that he will be testifying before the House Committee on Agriculture on Tuesday regarding the need for clear crypto rules as well as the Digital Asset Market Structure discussion draft released Friday.
“The US is falling behind,” tweeted Grewal. “We cannot afford to ignore crypto while other markets take advantage of our absence, developing rules and regulations that enable the industry to thrive and risk sending jobs, investment, and technological leadership overseas.”
Besides Coinbase, shares of MicroStrategy (MSTR), which holds Bitcoin on its balance sheet, fell almost 9%. Additionally, several bitcoin mining stocks took a hit, too, with Bitfarms (BITF) dropping by more than 6%. Meanwhile, both Marathon Digital (MARA) and Riot Blockchain (RIOT) recorded a decline of over 9%.
BNB: The Native Token of the Binance Ecosystem
As of writing, BNB is trading at almost $277, down 14.5% in the past two weeks. Still, the coin is up 23.23% year-to-date (YTD), although it has fallen 59.5% from its all-time high (ATH) of $686 that it hit in May 2021.
BNB is up a whopping 697,400% since hitting an all-time low of $0.0398 over five years ago in Oct. 2017.
Binance Coin (BNB) is the exchange token of the centralized crypto trading platform Binance and holders get to access discounted fees on the exchange. According to Binance, “BNB coin is not a security” but rather a “native token designed to create an internal economy” where its “value derives from its participants.”
Originally launched on the Ethereum blockchain, BNB was later migrated to Binance’s own layer 1 network called Binance Smart Chain, now called BNB Chain, on which applications can be built. This makes it a competitor to the Ethereum network, with faster and cheaper transactions but more centralized.
BNB Chain’s DeFi ecosystem is currently the third-largest, after Ethereum ($26.36 bln) and Tron ($5.52 bln), with $41.12 billion of total assets locked (TVL), as per DeFi Llama. Decentralized exchange (DEX) PancakeSwap accounts for 42.10% of this TVL.
CAKE, the native token of DEX PancakeSwap, also plummeted by 11% and is currently trading at $1.58. The $320 million market cap token recorded $61 million in 24-hour trading volume.
Besides having a centralized exchange, Binance also has its own DEX on the BNB Chain.
Binance created BNB tokens to raise funding through ICO in July 2017 at a price of 2,700 BNB per ETH. One hundred million BNB tokens were kept by the founding team and angel investors.
In its original whitepaper, Binance also proposed spending 20% of its profits every quarter to buy back and remove tokens from circulation until only 100 million are left. As of writing, BNB has a total supply of 200 million BNB tokens, and about 157.88 million are circulating in the market, according to CoinGecko.
Click here to learn all about investing in Binance Coin (BNB).
SEC Files Charges Against Binance and CZ
Binance was founded by CEO Changpeng Zhao, known by his initials CZ, in 2017. The cryptocurrency exchange has been facing regulatory scrutiny for a long time now, and with the US regulators cracking down on the crypto industry, things are getting harder for Binance.
This week, the second civil complaint targeted the trading platform in recent months after an earlier lawsuit from the federal Commodity Futures Trading Commission (CFTC).
In March, the CFTC filed a complaint in federal court in Chicago alleging Binance and CZ offered crypto futures and other derivatives to US residents without registering them with the CFTC. Binance’s former chief compliance officer Samuel Lim aided and abetted the platform in violations of US law, alleged the CFTC lawsuit.
Before that, in Feb., New York regulators shut down the issuance of BUSD, which accounted for roughly 40% of the company’s monthly trading volume. This isn’t all. Between Aug. and Dec. 2022, Binance also faced scrutiny for backroom asset shuffling. Reportedly, about $1.8 billion were moved to hedge funds without informing the customers, who were told the assets were 100% backed.
In the latest situation, the SEC sued Binance and CZ on charges of securities violations. In total, 13 charges were filed against the platform, alleging the exchange made unregistered and unlawful offers and sales of its exchange token BNB and stablecoin BUSD as well as certain crypto-lending products and a staking-as-a-service program.
The SEC also alleged that Binance.com wasn’t registered as an exchange or a broker-dealer clearing agency.
According to the SEC suit, many crypto assets, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS), and Coiti (COTI) that traded on Binance are securities and require registration and regulation. Resultantly, some of these tokens, especially the metaverse ones, are down the most in the past 24 hours.
SEC Chairman Gary Gensler took to Twitter on Monday to comment on the situation, stating that Binance entities and CEO CZ engaged in “an extensive web of deception, conflicts of interest, lack of disclosure and calculated evasion of the law.”
The regular further alleges that the platform misrepresented trading controls and oversight on Binance.US.
According to the SEC’s lawsuit, while the exchange claimed US customers were restricted from transacting on Binance.com, in reality, it was secretly allowing high-value US customers to continue trading on the platform.
Additionally, it is claimed that Binance and CZ “secretly controlled the Binance.US platform’s operations behind the scenes.”
The agency then goes on to allege that both Binance and CZ controlled customers’ assets and commingled with them as they pleased. As per the SEC, the funds were diverted to a CZ-owned and controlled entity called Sigma Chain, which engaged in manipulative trading that artificially inflated the platform’s trading volume.
SEC further alleged that Binance concealed the fact that it was “commingling billions of dollars of investor assets” and sending them to another Zhao-owned entity Merit Peak Limited.
Binance to Defend “Vigorously”
In response to the SEC lawsuit, Binance released a statement on Tuesday in which it said in clear terms that it will defend against any allegations and its platform “vigorously.”
“The SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry,” said Binance.
According to the exchange, the agency’s actions only undermine America’s role as a global hub for financial innovation and leadership.
“Digital asset laws remain largely undeveloped in much of the world, and regulation by enforcement is not the best path forward. An effective regulatory framework demands collaborative, transparent, and thoughtful policy engagement – a path the SEC has abandoned,” it added.
Meanwhile, the lawsuit has users withdrawing from Binance, which is recording outflows of $719 million over a 24-hour period, as per data from Nansen. Its stablecoin balance, however, remains healthy at just over $8 billion, with a seven-day outflow of $519 million.
“Our team is all standing by, ensuring systems are stable, including withdrawals and deposits,” tweeted CZ on Monday.
The exchange actually lost 14.5% of its market share in the past three months, according to research provider CCData. At its peak, Binance had captured 57.5% of the average monthly volume in February, which has now dropped to 43%.
Recently, the exchange also announced its plans to cut jobs, which it said wasn’t a case of sizing but rather a re-evaluation of whether the company has the right talent. Patrick Hillmann, chief strategy officer of Binance, described the downsizing as a “historic operational challenge.”
Over the last five years, Binance has seen “exponential growth” as its team expanded from a mere 30 to more than 8,000 employees.
Amidst all that is going on, it is speculated that CZ will step down from his role as CEO. CZ was already looking to reduce his ownership of Binance.US in an attempt to appease US regulators.
Richard Teng, a one-time Abu Dhabi regulator who oversees Binance’s regional markets outside the US, is seen as the most likely successor to CZ. Prior to heading up the Financial Services Regulatory Authority at Abu Dhabi Global Market (ADGM), Teng was a chief regulatory officer of the Singapore Exchange (SGX) and spent more than a decade with the Monetary Authority of Singapore (MAS).
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