Why the crypto sector is shrugging off Binance and FTX fears

The industry is about to experience its brightest dawn now that 'bad actors' are being purged

The arrest of Sam Bankman-Fried, founder of FTX, marks an end to a dark chapter in crypto’s history. AFP

Last week, Sam Bankman-Fried, founder of failed cryptocurrency exchange FTX, was finally apprehended by the authorities in the Bahamas.

This marks an end to a dark chapter in crypto’s history that has resulted in it being purged of a number of bad actors — leaving the path clear for the industry to move forwards and build into the next market cycle.

While we are all pleased to see Mr Bankman-Fried behind bars, the allegations now being levied against FTX’s largest competitor, Binance, are questionable.

On the same day that Mr Bankman-Fried was apprehended, news emerged that federal prosecutors in the US are considering filing criminal charges against Binance bosses including chief executive and founder Changpeng “CZ” Zhao for alleged money laundering and criminal sanctions violations.

The Department of Justice has discussed possible plea deals with Binance’s lawyers following a spate of cases in 2018 that criminals reportedly used Binance to transfer illicit funds, Reuters reported.

Tigran Gambaryan, Binance’s head of intelligence and investigations, responded to this by saying that the company has, in fact, responded to more than 47,000 law enforcement requests since November 2021.

In addition to the accusations, investors have apparently been fleeing Binance due to fears stoked by its reserve report published earlier in December, which some experts claim did not go into enough detail. This has led to about $2 billion in withdrawals from the exchange, as of December 14.

Politics or personal vendetta?

Originally founded in China and currently registered in the Cayman Islands, with subsidiaries across some 40 locations globally, Binance has always operated in a regulatory grey zone, undoubtedly causing headaches for global regulators.

It is, therefore, no surprise that as global watchdogs focus their attention on the crypto sector, Binance is getting caught in the crossfire.

Yet, it is hard not to see a certain degree of political opportunism at play here.

Mr Zhao has been in the blockchain and crypto industry since 2014, scaling it both as a centralised institution and also building out decentralised finance through the Binance Smart Chain and decentralised solutions like PancakeSwap and others.

Binance was scaled with ingenuity, competitiveness and a focus on execution and meeting customer demands at all times.

It has never, despite hacks and crashes, lost customers' funds. Indeed, the fact that $2 billion has been seamlessly extracted from the platform shows that there is no problem with liquidity.

Mr Zhao and Binance are also operational and licensed in numerous jurisdictions across Asia and the EU and it has a separate entity, Binance US, licensed and regulated in the US.

Mr Zhao is a Canadian citizen of Chinese descent who owns Binace 100 per cent. He has worked tirelessly to build out the Binance enterprise with passion, dedication and integrity, and it is disappointing to see the circumstances in which accusations are being levied against him.

Drama fatigue sets in

Despite the political wrangling, however, markets are soldiering on.

From a cycle low of $15,599, Bitcoin recently soared above $18,000, while Ethereum (ETH) was trading close to the $1,300 mark, up from a low of $1,081 on November 22.

The market has retreated somewhat on warnings from the US Federal Reserve that we have not seen the end of rate hikes yet, however, signals remain positive.

Data from analytics company Santiment shows that addresses already holding large amounts of ETH have been adding further to their holdings.

On-chain data from CryptoQuant has recently put to bed concerns over Binance’s balance sheet with a recent report showing the exchange’s reserves to be 89 per cent “clean”, meaning that they consist of third-party assets not operated by Binance.

Cryptocurrencies — in pictures

Meanwhile, crypto companies are doing what they do best during bear markets: getting their heads down and building the future of decentralised finance.

According to the H2 2022 Developer Survey conducted by Hiro, a Web3 developer toolkit, 55 per cent of respondents said the bear market has only stoked their desire to build innovations in this space.

Many lessons will be learnt from the collapse of UST, Celsius, FTX et al this year — lessons that will eventually lead to a stronger, truly decentralised cryptocurrency ecosystem of the future.

Those suggesting that crypto is down and out as a result of recent events have failed to grasp just how resilient this space is — and how talented those driving it are.

Far from being dead, crypto is about to experience its brightest dawn yet.

Stefan Rust is the founder of Laguna Labs, a blockchain development house, and former chief executive of bitcoin.com