The SEC lawsuit against Binance had an immediate effect: right away there were huge crypto outflows from the exchange.
At this moment on CoinMarketCap, Binance’s reserves stand at $59.8 billion, but in recent days they were well above $60 billion.
According to Nansen’s data, they have declined by 4.5% since 4 June, and it is possible they are still declining.
Yesterday alone they were down by $1.6 billion, and the outflow also affected the US version of the exchange, Binance US, although in this case it is of a much smaller magnitude.
These aren’t concerning figures about the exchange’s resilience, not least because similar outflows have occurred before without the exchange experiencing problems.
Summary
The reason for the crypto outflows from Binance after the SEC attack
Behind this wave of withdrawals is most likely the fear that the exchange may have problems, either meeting all withdrawals, or keeping all exchange pairs running.
Truth be told, Binance has never shown clear signs of having problems meeting all withdrawals. At most, sometimes there has been some slowdown.
So fears about its viability as of today would seem to be overblown.
Instead, on the version dedicated to the US market, Binance.US; several trading pairs have already been delisted.
Indeed, the SEC, after the complaint, had managed to obtain a restraining order from the court that effectively froze the corporate funds of the U.S. subsidiary.
However, the freeze does not affect customer funds, which can continue to withdraw without any problems, but only those owned by the company itself.
The reaction of Binance.US was to suspend trading on several trading pairs, believing them to be those at greatest risk of creating problems.
The SEC accuses Binance of violating US securities laws by allowing the buying and selling of unregistered securities. The US agency believes that many cryptocurrencies are securities, and because they are not registered as they should they should not be sold publicly.
Binance is trying to run for cover, and is doing so specifically on the platform dedicated to the US market. By contrast, there are no changes on the international version, where in theory Americans should not be able to trade.
The losses of Binance.US
Focusing solely on the version for the US market, the Wall Street Journal has uncovered as much as $181 million in accumulated losses in 2022 alone in the documentation filed in court.
It is worth mentioning that Binance.US has much smaller trading volumes as compared to not only Binance.com, but also Coinbase, for instance.
According to CoinMarketCap’s data, which is disputed by the SEC itself, Binance’s international platform claims $9 billion in daily spot trading volume, while Binance US only claims $170 million.
Coinbase claims just over a billion, and the other major US exchange, Kraken, 600 million.
During the bullrun of 2021 they all most likely gained quite a bit, but with the bear-market of 2022 it is not surprising that they have made less, or even lost.
In fact, trading volumes have plummeted since 2021.
Binance.US never had large trading volumes, precisely because of strong competition in the US from not only Coinbase and Kraken, but also and especially from FTX for most of the course of 2022.
In light of this data, one wonders why Binance keeps the platform dedicated specifically to the US market active, with all the problems that entails, although in this regard it is worth mentioning that it is technically not owned by Binance, but owned by a US company, which, nonetheless, is apparently controlled by Binance and its co.founder Changpeng CZ Zhao.
The lawsuit from the SEC against CZ
CZ himself has been sued by the SEC, accused among other things precisely of concealing his control of the exchange’s US subsidiary.
In theory Binance.US is supposed to be a separate exchange from Binance.com, simply under the same brand name.
It is also supposed to be owned by different people, but the SEC accuses CZ of being the real owner, or at least the one who controls the US company that formally owns Binance.US.
In fact, the District Court for the District of Columbia in Washington sent CZ himself an official summons for a hearing.
The summons does not constitute an indictment, nor does it compel the co-founder of Binance to appear. However in the event that CZ fails to respond within 21 days, he would in fact be considered in absentia.
Zhao’s comment to this news was that this action would only be a part of the SEC-compliant process, i.e., nothing new, and that he would not necessarily have to appear in person.
The assumption therefore is that he will respond by sending a letter.
Crypto: Binance and Coinbase vs the SEC
The leading U.S. exchange, Coinbase, is also facing a similar issue, but to a lesser degree.
In fact, Coinbase is accused “only” of allowing the buying and selling of unregistered securities, while the charges against Binance are multiple.
The other major difference is that Coinbase is a US-based exchange that also has a second platform dedicated to the international market. It is also listed on the Nasdaq exchange.
In contrast, Binance is an exchange that has no specific location, although CZ is a Canadian citizen of Chinese descent, and its main platform is international.
The version for the US market is the secondary platform, and Binance is not listed on an exchange.
In addition, Binance has its own token, the BNB cryptocurrency, while Coinbase does not.
The impact on the Binance Coin (BNB) crypto
Not surprisingly, in recent days BNB is among the major cryptocurrencies that is losing the most.
To be fair, it was already not performing very well since May, as after a +36% in January it had failed to show similar growth in 2023.
Starting from $337 in early May, the price had already fallen to $305 on 4 June, then collapsed in a few days to the current $260.
The current price is only 6.5% higher than at the beginning of the year, and 62% lower than the all-time high in May 2021.
Following the collapse resulting from the implosion of the Terra/Luna ecosystem in May last year and then the bankruptcy of Celsius in June, the price dropped all the way below $200, and since then it has begun a long period of lateralization at medium/high volatility that at its highest brought it back above $350 in November before the FTX bankruptcy.
It is worth noting that collapses like the one of the last few days have already occurred several times in the past months on the price of BNB, thus it is not at all to be considered abnormal.
However, if in the future the exchange were to be forced to remove many trading pairs on the international version as well, or in other major markets, the situation could get worse, especially with regard to the profitability of its business.
