Binance Gets Wrapped Up In Media & Regulator FUD

The world’s largest crypto exchange, Binance, was hit with a double-whammy of bad news today. First, the exchange was accused of enabling money laundering on its platform — and second, the U.S. Securites and Exchange Commission announced an investigation into the platform’s $BNB token.

The first of these charges might be even more spicy than the toothy regulatory battle that might await the company. Reuters reported today that Binance processed at least $2.35 billion worth of transactions from hacks, investment frauds, and narcotics sales from 2017 to 2021. Among their charges were that the platform skimped on Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.

Among their chief concerns is that the company became a “hub” for these illicit trades and dealers. They cited North Korea’s involvement in a hack on a Slovakian exchange called Eterbase among a slew of other eye-raising events. And though $2.35 billion might not sound like a lot, that’s just what Reuters knows of.

The company’s CEO, Changpeng Zhao, responded to the claims about the company’s crypto money laundering in a tweet published at 6:32pm today. The tweet, which links to a blog post made on the Binance blog, says that “the machine” (media) are selling a false narrative. In it, the company includes 50+ pages of correspondence between Binance and journalists.

One of the exchange’s chief conclusions? That 0.15% of transactions made with cryptocurrencies in 2021 were “associated with some type of illicit activity.” They cite a UN statistic that says that between 2-5% of cash is involved in illicit activity. “Crypto is incredibly transparent, infinitely moreso than the traditional cash economy, and this is well documented.”

That news led down river to a separate, but perhaps even more disappointing piece of news for the exchange: that one of America’s biggest finance watchdogs was investigating whether the company violated securities law by issuing its “exchange token”, Binance Coin.

Binance Coin has grown to become the fifth-largest cryptocurrency (including stablecoins), in part because of the utility it has gained off-exchange: the crypto’s Binance Smart Chain is the second-largest chain by TVL and has hundreds of DeFi projects operating.

Binance did its ICO of the $BNB token in July 2017, which was around the time that Binance’s exchange opened. Since a U.S. resident participated in the ICO, the SEC has free reign to pursue a securities suit. The regulator has already brought cases against projects which issued tokens to consumers, including most famously Ripple Labs. 

The company did not issue comment regarding the SEC’s potential investigation, which could develop into a legal action against the exchange’s holding company if the regulator finds grounds to proceed.

Senator Cynthia Lummis (R-WY) announced on Friday that she planned to release a long-awaited proposal to “fully integrate digital assets into our financial system” this coming week. The bipartisan bill, which was jointly drafted by Senator Kirsten Gillibrand (D-NY), is expected to give a glimpse into the effects of crypto’s powerful lobbying campaigns on Capitol Hill.

Lobbying by cryptocurrency companies quadrupled from 2018 to 2021, eclipsing $9 million in total spend according to Bloomberg. Among the biggest spenders were Coinbase ($1.5 million), Ripple Labs ($1.1 million), and Stellar Development ($590,000), among others. It’s notable that Ripple is currently being sued by the SEC in federal court.

And that number doesn’t even include the millions funneling into the forthcoming election cycle: crypto companies have poured over $30 million into campaigns, with FTX’s Sam Bankman-Fried reportedly raising nearly half of that figure.

All this money is certainly worthy for the emergent and nascent crypto and web3 space. It’s not just having an impact on the kind of candidates bubbling up in anticipation of this November’s midterm elections, but affecting election outcomes and legislative priorities for crypto. 

According to Politico, a leaked version of the bill stoked concerns among left-leaning thinktanks. Specifically, the Center for American Progress cited that “it would have created new avenues for token-based startups to skirt securities laws and have allowed investors to duck taxes on crypto transactions where they gross less than $600.”  However, Lummis indicated in a tweet published in late May that any leaked legislation predated Gillibrand’s involvement.

One factor that is top of mind is the bodies which will ultimately regulate crypto. Right now, that’s the Securities and Exchange Commission (SEC). However, efforts by some lawmakers (and this bill), might create self-regulating agencies, or prescribe control over crypto regulation to one or more regulatory bodies. That could include the SEC, or its closely-acquainted neighbor, the CFTC (which is what crypto maximalists want.)

We’ll ultimately get a look at the bill, its allegiances, and what it might mean for the future of crypto later this week.

Kanye West once famously told his fans that his focus was on building “real projects in the real world.” A post made on his Instagram some months ago indicated he had no interest in doing a “f***ing NFT”, pouring water on hopes that the hip-hop and rap icon would make a move in the world of web3.

However, one of the scene’s most innovative faces might be changing tune. A new trademark application for his Yeezus brand, filed May 27, was done so in a peculiar category: “blockchain-based non-fungible collectibles, assets, currencies and tokens” and “online retail store services featuring downloadable movies, videos, television, music, entertainment, digital art.”

In short, maybe Kanye and Yeezus will be making their move on web3 with an NFT collection or crypto asset of some sort. Or, at least in the near-term, maybe it’s just an effort to protect the Yeezus brand’s multi-billion dollar intellectual property value.

Other rappers in the game such as Ice Cube, Snoop Dogg, and Nas have already jumped into the world of NFTs and web3. Each of them have created collectibles in the emergent industry, in metaverses and on marketplaces like The Sandbox and Royal.