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Crypto Market Is Just Fine With a $4 Billion Binance Penalty

(Bloomberg) — Memo to Changpeng Zhao: Crypto markets want you to take the government’s offer.

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Binance Coin led a rally in digital-asset prices on Monday after Bloomberg reported that the US Justice Department is seeking more than $4 billion to end a criminal probe into Zhao and his company Binance, the world’s largest digital-asset exchange. The coin known as BNB rose as much as 8.5% to $266.42, and Bitcoin climbed as much as 2.1% to $37,768. Stocks of companies involved in the industry also rallied.

While the penalty would go down as one of the biggest ever levied against a company by the US government, traders and analysts are breathing a sigh of relief for the broader market. There are still questions that need to be answered, including what concessions the government will require of Binance and its leader, yet the report provides some clarity that there is a path forward for Binance, according to Anil Lulla, co-founder of crypto research firm Delphi Digital.

It “would be great to get this behind us,” Lulla said. “It was an overhang in the industry. And while $4 billion is not an insignificant number, it’s probably a small price for Binance to pay to move forward from this.”

While the exact details of Binance’s finances are a closely held secret, the company generated at least $20 billion of revenue during the crypto boom in 2021, according to a Bloomberg analysis last year of its trading volume and fees.

However, Binance’s combined market share in spot cryptocurrencies and derivatives is on trend to decline for the ninth consecutive month, falling to 43.9% as of Nov. 15, according to data compiled by CCData. OKX has been the largest beneficiary of Binance’s decline in the derivatives market, with its market share rising from 11.2% to 24.9% since the start of the year, CCData said.

“First thing that comes to mind is that it’s a big settlement from a historical DOJ perspective,” said Leo Mizuhara, founder and CEO of decentralized-finance institutional-asset manager Hashnote. “One wonders if $4 billion is enough to discourage this sort of behavior, though. Ultimately it may be worth the risk reward without the criminal charges.”

Negotiations between the Justice Department and Binance include the possibility that Zhao, who goes by his initials CZ, could face criminal charges in the US under an agreement to resolve the probe into alleged money laundering, bank fraud and sanctions violations, according to people familiar with the discussions. He is currently residing in the United Arab Emirates, which doesn’t have an extradition treaty with the US, but that doesn’t prevent him from coming voluntarily. Binance didn’t respond to multiple emails and phone calls seeking comment. The Justice Department declined to comment.

Read More: US Is Seeking More than $4 Billion From Binance to End Case

In the stock market, shares of Coinbase Global Inc., the only publicly traded US crypto exchange, surged 7.1% to a four-month high of $106.10. Other companies involved in the industry also surged, with MicroStrategy Inc.. shares climbing 4.5% and crypto-miners Riot Platforms Inc. and Marathon Digital Holdings Inc. up 8% and 6.5%, respectively.

This reaction in the market seems to indicate that the DOJ’s decision is not a systemic risk to the entire industry, said Greg Moritz, co-founder and chief operating officer at crypto hedge fund AltTab Capital.

“Binance isn’t short on capital and monetary fines are often a cost of doing business in an environment where the rules are ambiguous,” he said. “Long term, this is almost certainly good news as it provides further clarity on what enforcement will look like and markets love clarity.”

The crypto market has rebounded strongly this year following massive losses in 2022, with Bitcoin more than doubling amid optimism that the Securities and Exchange Commission is poised to approve an exchange-traded fund that invests directly in the oldest and biggest token.

“This is better news than Bitcoin ETFs,” Zaheer Ebtikar, founder of the crypto fund Split Capital, said of the potential resolution of the probe into Binance. “Assuming there’s no further investigations, this is as good as it can get.”

–With assistance from Chris Strohm, Allyson Versprille and Olga Kharif.

(Updates with stock-market reaction in 2nd and 9th paragraphs.)

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