Credulous Press Shouldn’t Buy That Binance Will Be OK

Overemphasizing the fines leveled against the crypto exchange ignores the true point of the settlement: regulatory compliance.

Late last month, the Department of Justice (DOJ) announced that it had reached a plea deal with Binance Holdings Limited, the world’s largest cryptocurrency exchange, and its founder and CEO, Changpeng Zhao (known as CZ). Most notably, the settlement will:

• Force Binance to pay $4.3 billion in total fines to the DOJ, Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC), Internal Revenue Service Criminal Investigation Division, and the Commodities Future Trading Commission (CTFC) for unlicensed money transmitting, sanctions violations, and failure to comply with the Bank Secrecy Act’s anti-money laundering requirements.

• Force CZ to plead guilty to one felony money laundering charge, step down as CEO, and pay a $50 million fine. CZ is currently barred from leaving the US until he is sentenced. Federal prosecutors are seeking a punishment of 18 months in prison.

• Place Binance under overlapping DOJ and FinCEN monitoring programs, for three and five years respectively, to ensure proper regulatory compliance.

The news came mere weeks after Sam Bankman-Fried, CZ’s former rival, was convicted of engaging in fraud that brought about the collapse of his FTX exchange. For robbing thousands of customers of billions of dollars, SBF could theoretically face over one hundred years in prison—although the disgraced crypto executive isn’t likely to actually spend nearly that much time behind bars.

Regardless, with the catastrophe of SBF and FTX as an example of how bad things could go for CZ and Binance, it’s not surprising that a plea deal would seem much more appealing. It’s also no surprise that crypto-friendly outlets like Coindesk would report it as such:

“Binance's expensive deal with U.S. prosecutors this week bears harsh consequences but could leave the world's largest crypto exchange with a brighter outlook going forward. After a months-long investigation by the U.S. Department of Justice, co-founder and CEO Changpeng ‘CZ’ Zhao on Tuesday pleaded guilty to violating federal crimes and Binance cut a check worth $4 billion to U.S. lawmakers. CZ, who until Tuesday was one of the most powerful people in the crypto industry, agreed to step down. All this might sound like a pretty bad outcome for the Hong Kong-based exchange, but it’s also an opportunity for a fresh start – possibly the best-case scenario for Binance, which had been haunted by market fears that U.S. authorities might deal a devastating blow.”

If we let industry interests tell it, a few billion dollars worth of fines and increased regulatory oversight isn’t just an avenue to set Binance on the straight and narrow, but is the detox necessary to cleanse the crypto economy as a whole. A researcher quoted in the same Coindesk article said as much: “‘Optimistically, this can be viewed as a removal of a long-standing overhang on the industry, one that kept many investors at bay,’ Greg Cipolaro, global head of research at NYDIG wrote in a note.” 

But the idea that the DOJ settlement will represent a new start for Binance takes for granted the notion that a law-abiding version of the firm can even exist. Let’s remember that this is the same company that famously made headlines for having a fake bailout fund, scaring off auditors, issuing uncollateralized dupes of other cryptocurrencies, and commingling funds—not to mention all the charges levied against them by the DOJ, Treasury Department, and CFTC that they admitted to in this settlement.

It’s also important to note that the Securities and Exchange Commission (SEC) were not signatories to the settlement. The SEC is still actively suing Binance (and its affiliate organizations) for securities violations. 

Assuming that Binance has a viable business model underneath all its criminal activity only works if you purposefully ignore the company’s troubling history. This sort of willful ignorance is exactly what you would expect from an industry desperately grasping for any semblance of stability and legitimacy. Shamelessly declaring that “everything is fine” has basically been crypto’s entire approach to public relations. And for far too long that was enough for the tech and financial press, especially during 2022 when the grift was its most popular. But as my colleague Henry Burke and I wrote for The American Prospect:

“The crypto hype cycle that, just one year ago, was able to produce dazzling media spectacles like the ‘FTX Arena’ and ‘Crypto Bowl’ wasn’t sustained by retail investor fear of missing out alone. It took the buy-in of established, influential—and, more importantly, ostensibly neutral—elites like [Larry] Summers to effectively keep the con going.”

Reporters and journalists who took the promises of SBF, CZ, Su Zhu, Alex Machinksy, Stephen Ehrlich, and any other now-discredited crypto executive for granted are just as responsible as pundits like Larry Summers for allowing the scam to continue for much longer than it should have. 

Likewise, the assumption that Binance will survive a level of regulatory oversight that the former founder of the SEC’s Office of Internet Enforcement described as a "24/7, 365-days-a-year financial colonoscopy," only works if you take for granted the idea that cryptocurrency has proven itself useful beyond speculation. As my colleague Timi Iwayemi wrote in the immediate aftermath of FTX’s implosion, the real story of crypto is that:

“Bitcoin and the more than 12,000 other cryptocurrencies have utterly failed to realize the tech-libertarian dream of decentralized peer-to-peer lending, for the simple reason that wildly speculative investment vehicles cannot serve as reliable stores of value or units of account.”

That was in November 2022, and in the year since nothing has changed. If anything, crypto proponents themselves are closing up shop and encouraging a pivot to artificial intelligence. 

And even if we ignore the industry’s more lofty ambitions, who’s to say that crypto can even effectively function as a speculative asset. As my colleagues Timi Iwayemi and Dylan Gyauch-Lewis explained in The New Republic, that premise itself doesn’t even hold up that well under closer examination: 

“It’s important to note, however, that suspect accounting practices aren’t unique to FTX; it’s an industry-wide issue. The fundamental problem that caused FTX’s collapse is that there are no fundamentals to offer any stability for a crypto token’s value. Ephemeral pricing that’s frequently manipulated by opaque market participants in a new product without meaningful historical parameters makes the accounting shenanigans of the ‘traditional’ financial sector seem quaint. To maintain the illusion of solvency, the brokerages, exchanges, and investment firms peddling crypto need to make sure that there are enough purchase orders to simulate demand and that there are few enough sell orders to keep supply from flooding the market. The way that most crypto hucksters achieve this feat is by relying on market makers (such as Alameda in FTX’s case) to buy and hold large amounts of tokens.”

In other words, cryptocurrencies are too volatile to even effectively fill their current roles as digital casino chips. The entire system can’t even function without market manipulation—a practice that is illegal and would be immediately stopped by regulators. 

(And, so, yes, we’re aware that there is a current run up in the nominal price of Bitcoin at this moment—but we believe that the “value” of digital ephemera is subject to manipulation and thus should always be treated as, well, ephemeral.)

With all this in mind, reporters should be skeptical that Binance has somehow weathered the storm. While it’s true that $4.3 billion and $50 million fines, although historic, seem like slaps on the wrist to a company that pulled in $12 billion in revenue last year and an individual roughly worth $20 billion respectively, emphasizing the fines obscures the full value of the DOJ’s settlement: bringing an ostensibly untouchable company to heel through regulatory enforcement. As prominent crypto-skeptic David Gerard explained in his blog, “the stake through Binance’s heart won’t be the $4.3 billion in fines — it’ll be the compliance.” And it's time for the tech and financial press to start acknowledging that.