The U.S. Department of Justice (DoJ) is eyeing crypto exchange Binance for fraud charges. Prosecutors, however, are also worried about the implications of such a move, which could potentially harm innocent customers.
The concern comes in the light of last year’s FTX collapse which erased billions of dollars in value from crypto markets. This, along with the long history of failed firms in traditional finance – like Lehman Brothers in 2008 – dragged down the rest of the industry. It also tarnished the faith people had in important institutions.
In the crypto exchange industry, Binance is the biggest in size. The US officials are reportedly concerned about the repercussions that an indictment on Binance could have on the broader cryptocurrency industry.
This could also lead to a run-on, which is a situation where investors withdraw their money from the platform out of fear, leaving the exchange without liquidity. The memories of the same remains fresh following crypto exchange FTX’s collapse after Sam Bankman-Fried was called out for mixing customer assets with sister firm Alameda Research.
As a result, volumes of money were stuck as individual investors and institutions both cited exposure, placing customers at the heart of the struggles. A prosecution on Binance could provoke a similar run-on against the platform where many customers would likely suffer financial losses.
Therefore, alternatives such as “fines and deferred or non-prosecution agreements” are being considered and weighed, as told by sources familiar with the matter.
The new charges of fraud on Binance and its CEO Changpeng Zhao would be one amongst the many it already has with the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These financial watchdogs have charged them for “operating an unregistered exchange in the US and knowingly allowing its citizens to participate in Binance’s offshore exchange”.
Following the reports of the recent news, the price of Binance’s $BNB token took an immediate fall. At the time of press, it was changing hands for $239, down by more than 2% in the last 24 hours. It was trading in the red too, along with a majority of the top cryptocurrencies like Bitcoin, which was down by over 1% daily.
The broader cryptocurrency market was also in the red as there was a negative change by 1.6% in a day. The market capitalisation of the same was at $1.21trillion.