Binance CEO Zhao could face criminal charges – what does this mean for crypto?

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Binance CEO Zhao could face criminal charges – what does this mean for crypto?

By Dan Ashmore - min read
  • Department of Justice prosecutors split on whether enough evidence to file criminal charges against Binance CEO Changpeng Zhao
  • Binance’s position in the industry is so dominant that any story on them is now a big deal 
  • Regardless on the charges, Binance’s proof of reserves failing to satisfy transparency demands
  • Crypto needs to change its entire ethos, as customers currently forced to hope with blind faith that all is OK

Here we go again. According to a Reuters report, Department of Justice prosecutors are split over the next steps to take regarding a Binance investigation.

The exchange has been under investigation since 2018 for allegedly failing to comply with anti-money laundering laws and sanctions.

The report claims that some of the federal prosecutors want to move ahead aggressively against the exchange. They believe they have enough evidence to file criminal charges against individual executives, including CEO Changpeng Zhao (CZ).

Binance fire back 

Binance criticised the report, to nobody’s real surprise.

“Reuters has it wrong again. Now they’re attacking our incredible law enforcement team”, it tweeted out.

So, is this the latest storm in cryptoland? Is Binance in trouble?

Well, it’s easy to jump to knee-jerk reactions given the shenanigans in the space from other actors (we don’t need to name any names, I’m sick of talking about certain people). But this isn’t that.

This has been a long-running investigation, commencing in 2018. Binance’s tussles with regulators are no secret. Brian Brooks, the former CEO of the American subsidiary, Binance.US, stepped down only three months into the job as regulators closed in.

CZ said at the time that Binance was “going to pivot to be a fully regulated financial institution going forward” and that he would be “very open” to stepping down if a replacement CEO with more regulatory experience was found.

This is therefore not a wholly unexpected development, with the public well aware this was an ongoing investigation.

More of the same for crypto

However, while this is not an alarm bell situation, it sums up big problems in the crypto industry. Nobody really knows what to make of this investigation, and that is sort of the point – Binance is far from transparent which is not healthy for the industry at large.

Crypto is now also at a point where CZ and Binance are vitally important to the space at large. A misstep from the exchange could be fatal. Its importance has never been more evident than by looking at the $1 billion fund created by CZ to prop up struggling players in the industry (in a move spookily reminiscent of Sam Bankman-Fried’s carryon as the “lender of last resort” in a past life, by the way).

It makes perfect sense that regulators are coming for the former “headquarterless” exchange (which seems to still not have a formal headquarters, by the way), given both this dominance of the market and the lack of transparency.

Coinbase and Binance the last two players, but one is more transparent than the other

Binance, alongside Coinbase, is now probably the most important firm in the entire crypto industry. But they are very different. Coinbase is publicly listed and on a completely different level in terms of transparency. The required disclosures and other hoops that public companies must jump through may be burdensome, but they do provide peace and mind for customers.

Binance, on the other hand, has skirted the law throughout its highly successful few years of existence. Not that this is a criticism of them – the industry literally sprung up from nothing, with regulation entirely non-existent. It was impossible to do anything otherwise in the past.

But the crypto industry has grown, and Binance still presents as a complete mystery when it comes to its financials. This is despite several claims to the contrary.  

Their proof of reserves was largely meant to address this transparency issue. However, their process is far from satisfactory. I spent a few hours over the weekend trying to get my head around it, and came out more confused than when I went in.

Jesse Powell, CEO of Kraken, has been noticeably critical of this, and I believe he raises good points.

In fairness, CZ has said that he will improve this, and it is still early days. But the information that has been published thus far reveals next to nothing about the inner workings, or financial health, of Binance.

Crypto at a turning point

CZ is now the most important man in crypto, given Binance’s monstrous dominance of the market.

These continued stories do nothing but drag crypto’s reputation through the mud, which is its biggest problem right now. Institutions, mainstream media and non-crypto natives will see these stories and roll their eyes. Many will be fearful of going anywhere near this industry right now.  

In my view, it would be nice to see Binance make a concerted effort to establish true transparency. I think their efforts thus far have been very below-par, and just because they compare favourably to some bad actors in the space does not mean they are doing well in this regard.

Given the chaos in the industry all year, and especially recently with FTX, Binance is obliged to hold itself to a higher standard, whether deserved or not. Happenings like the below – while probably perfectly legitimate – are concerning for the industry, because of what they could mean.

The ethos of crypto is to never trust, but verify. And yet we all depend on the tweets of a collection of CEOS to assure us are funds are OK (and sometimes – just sometimes – certain people have been known to “bend” this truth).

CZ has been very critical and vocal about other players in the space over the last while. Personally, I would rather he separate himself from that mess and focus on getting Binance into a place where it is as transparent as possible.

Because it makes perfect sense that regulators are coming after these centralised crypto players. It is exactly what they should be doing, until we get some more transparency.  

But until that day comes, people have to just “hope” that Binance is acting in good faith and have their ducks in a row. Fro avoidance of doubt, there is no evidence to suggest that this hope would be misguided.

I just thought that one of the main perks of crypto was that you didn’t have to just blindly trust centralised financial institutions to do the right thing…