Binance’s BNB Coin Price and Regulatory Challenges
Binance’s native cryptocurrency, BNB, experienced a significant drop in value, falling to as low as $204 on August 22. However, it has shown some signs of recovery, hovering around the $217 mark. The cryptocurrency exchange, Binance, is undoubtedly keen on preventing further drastic declines in the BNB price. This task, however, has become increasingly challenging due to heightened regulatory scrutiny and restricted access to fiat off-ramps.
Volatility and Regulatory Constraints
BNB has rarely dipped below the $200 mark since February 2021. Binance holds assets valued at a minimum of $4 billion on its BNB blockchain. Notably, its founder, Changpeng Zhao (CZ), maintains significant control over BNB’s $33 billion market capitalization. Despite this, CZ and Binance officials have disputed the accuracy of this valuation.
Similar to other crypto exchanges, Binance’s proprietary token serves as collateral for various types of loans, reserves, and attestations. As history has shown with instances like Tether, assets can swiftly move on and off a balance sheet shortly after an attestation.
The Perils of Token Collapse
The collapse of FTX’s proprietary token (FTT) in November 2022 serves as a striking example. Once FTT’s value plummeted below $22, the entire exchange collapsed within a mere two days. Margin-backed collateral linked to FTT triggered a chain of liquidations, ultimately leading to FTX filing for bankruptcy.
Binance US faced its own set of challenges with the inclusion of Merit Peak on its platform, catching the attention of the U.S. Securities and Exchange Commission (SEC). The SEC expressed concerns about Binance US commingling customer deposits with corporate funds and even requested an emergency freeze of Binance US assets due to the involvement of CZ-controlled Merit Peak. The concern was that CZ could potentially trade against U.S. citizens or mishandle funds.
SEC Scrutiny and Regulatory Designation
CZ contested the SEC’s investigation into whether BNB qualified as an unregistered security. Despite his objections, the SEC officially classified both BNB and Binance’s stablecoin BUSD as unregistered securities.
Binance found itself under SEC scrutiny due to allegations of CZ’s control over Binance US through proxies like BAM Trading Services Inc. and Merit Peak. Although Binance US was intended to operate independently from Binance, evidence suggested otherwise. The SEC argued that CZ and Binance had significant control over Binance US customers’ funds from the start.
Silvergate Bank’s authorization for a Binance executive, Guangying Chen, to transfer funds between Binance US and Merit Peak raised further concerns. This CZ-controlled entity became a major market maker on Binance US, leading to allegations of fund commingling, which raised legal and ethical questions.
Uncertain Future and Regulatory Fallout
Binance vehemently denied reports of commingling customer and corporate funds during transfers between Binance US and Merit Peak. Despite regulatory challenges, CZ remained steadfast in his commitment to comply with legal and financial obligations.
However, the revelation of CZ’s alleged use of proxies and behind-the-scenes control raises questions about his ability to weather a potential drop in BNB’s price. In dire circumstances, there might be an attempt to establish a floor price for BNB, similar to Caroline Ellison’s efforts with FTX’s FTT token before FTX’s bankruptcy filing.
Speculation is circulating that CZ and Binance may already be in crisis mode concerning BNB, with rumors suggesting they could be selling some of their bitcoin holdings to support BNB.
Restricted Fiat Access
Recently, Binance halted USD withdrawals due to anticipated service suspensions from banks toward its Binance US exchange. An alternative solution named MoonPay emerged, allowing the purchase of digital assets using debit and credit cards, Google Pay, and Apple Pay.
Furthermore, Binance faced limitations on fiat currency withdrawals in Europe due to SEPA transfers. Other fiat off-ramps for Binance appeared questionable, potentially due to the SEC’s focus on improper access to Binance US customer assets, prompting US banks to withdraw support. Binance US suspended deposits, withdrawals, and trading with USD, intensifying scrutiny on BNB’s price.
As the cryptocurrency community closely watches these developments, the fate of BNB remains uncertain in the face of regulatory challenges and market volatility.
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