Binance Is in Trouble. Thanks to Binance US and Crypto Regulations

Binance Is in Trouble. Thanks to Binance US and Crypto Regulations

20 February 2023

Everything can not be perfect all the time. This time luck turned away from Binance. And here is why.

Binance, the world’s first cryptocurrency exchange, has access to the bank account of its US counterpart Binance US.

And according to Reuters, Binance executives moved hundreds of millions of dollars from this account to a Merit Peak trading platform. And here is some surprise. Changpeng Zhao was the manager of Merit Peak.

What The Issue Is All About

Executives of Binance US did not know about the money transfers at that time and figured out about them after they were made, according to Reuters, which cites text messages between the CEO of Binance US and a Binance executive.

As data shows, the remittances began in late 2020. More than $400 million was transferred in the first three months of 2021.

Reuters shared the info that Catherine Coley, the CEO of Binance US at the time, wrote to a Binance financial officer in late 2020 seeking an explanation for the transactions, calling them unexpected and claiming that ‘no one addressed them.

Susan Li, a Binance official, didn’t go into detail on the transactions but stated that Merit Peak was a vendor that facilitated trading on Binance US and also made loans and capital infusions into the American exchange.

In the nutshell, Binance and Binance US are presented as two independent organizations. The second platform must follow U.S. regulators, while the first is a global platform that avoids U.S. regulation. As two independent companies, they should not use or have access to each other’s accounts. Reuters explains that it could not determine whether the funds transferred by Merit Peak were funds of Binance US customers.

Binance US has denied this information, stating in a tweet that Binance US’s bank accounts are exclusively accessible to Binance US staff. 

The business went on to say that while there was a market-making firm called Merit Peak that functioned on the Binance US platform, it stopped all activities on the platform in 2021. Binance US has never traded or lent out client funds and will never do so. Binance US has 1:1 reserves at all times and is subject to regular audits and regulatory reporting by government authorities.

In the end, the platform said there were no similarities between it and FTX, which is accused of transferring about $10 billion of its customers’ funds to Alameda Research, a trading platform also created by its founder, Bankman-Fried.

Several attempts have been made to draw analogies between Binance US and the exchange that has collapsed without mentioning its name. Platform stated this without mentioning the FTX that the statistics speak for themselves. Binance US is no comparison. 

But why did these analogies appear? The answer is simple. According to the Department of Justice and the Securities and Exchange Commission, FTX and Alameda Research were meant to be separate, but they maintained an incestuous connection. Bankman-Fried is charged with moving $10 billion in customer money from FTX to Alameda.

FTX was borrowing money using the client’s cryptocurrency as security, which it then transferred to Alameda Research. Alameda utilized this money to invest in cryptocurrency firms and trading operations.

“Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.

Zhao, nicknamed ‘CZ,’ has yet to comment on the Reuters article but tweeted this on  Feb. 17: “Remember 4. But focus on the first 3,” tagging one of his tweets from the start of the year on the “Do’s and Don’ts” for this year.

“4” refers to “ignore FUD [fear, uncertainty and doubt] fake news, attacks, etc.” If we stick to this logic, the Reuters article is, according to him, part of the “4”

History will also remember that it was Zhao’s tweet that sounded the alarm over the finances of Alameda Research and FTX, Bankman-Fried’s empire, and was the beginning of the end of the Binance rival.

Before FTX’s bankruptcy on November 11, Zhao and Bankman-Fried were considered two of the most powerful bosses in the cryptocurrency space. They are referred to by their initials: SBF and CZ. Now that the SBF group has broken up, many consider CZ the new king of cryptocurrency.

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