Jun 8, 2023

Binance.US Set to Be Cut Off From Banking System After SEC Suit

Suvashree Ghosh, Yueqi Yang and Emily Nicolle, Bloomberg News

The Binance logo on a smartphone arranged in the Brooklyn borough of New York, US, on Tuesday, Feb. 14, 2023. The New York State Department of Financial Services said it had directed Paxos Trust Co. to stop issuing new tokens of crypto's third largest stablecoin, a Binance-branded coin known as BUSD that has roughly $16 billion in circulation. Photographer: Gabby Jones/Bloomberg , Bloomberg

(Bloomberg) -- Crypto exchange Binance.US is being thrown deeper into disarray, as banking partners prepare to rescind support, liquidity dries up and traders withdraw tokens from the platform while US regulators clamp down on the company and its owner.

In an email to customers late Thursday, Binance.US told users its payment and banking partners had signaled an intent to pause support for the exchange’s dollar channels as early as June 13. That means Binance.US won’t be able to process deposits or withdrawals in dollars, forcing the platform to change tack and go all in on cryptocurrencies.

Binance.US’s customer assets total over $2.2 billion, according to a memorandum from the Securities and Exchange Commission.

The exchange was targeted by the SEC earlier this week alongside Binance Holdings Ltd., operator of the much larger crypto venue Binance.com which it claims is separate from US activity. Both are owned predominantly by Changpeng “CZ” Zhao, Binance.com’s chief executive, who is also being sued. Binance and Zhao have disputed the allegations.

While Binance.US is meant to be the only way Americans can trade with the company, its relative size means any changes will barely impact the larger Binance’s hold over the broader crypto market, where it processes roughly 54% of the sector’s monthly trading volume. Binance.US recorded about $6 billion in monthly volume in May, according to CCData, compared to Binance.com’s $212 billion.

The US platform’s decline had already been set in motion by an earlier lawsuit against Binance by the Commodity Futures Trading Commission in March, with its May volumes around 61% lower than they were a month earlier, CCData said. Meanwhile, reserves of stablecoins have more than halved in the last five days, according to CryptoQuant. Stablecoins, which are digital tokens typically tied to the value of a fiat currency like the dollar, are a vital means of storing value for crypto traders.

Binance.US’s reserves of Ether, the second largest cryptocurrency by market value, are nearing zero as traders withdrew or sold around $44.5 million in tokens from the platform since June 4, per CryptoQuant. The lack of liquidity on Binance.US will soon cause problems for traders seeking accurate pricing compared to other exchanges, with Bitcoin bid-and-ask depth falling dramatically in recent days, according to researcher Kaiko.

In the email to customers, the platform said “our ability to accept USD fiat deposits and process USD fiat withdrawals will be impacted,” the company said, while adding that it maintains 1:1 reserves for all customer assets.

The SEC subsequently said on Tuesday that it’s seeking to freeze Binance.US’s assets and protect customer funds, including through the repatriation of client investments held abroad.

Binance.US in the email to customers said the SEC’s allegations are “unjustified” and that “we will continue to vigorously defend ourselves.”

Richard Galvin, co-founder at Digital Asset Capital Management, said pricing differentials were emerging between Binance.US and Binance.com as US customers “look to rapidly sell and remove US dollars from the exchange.”

Something similar happened in late May at Binance Australia when the platform was about to be cut off from a key Australian dollar payment route, he said.

BNB, a token native to Binance, fell as much as 4.4% on Friday, extending a recent period of underperformance of wider digital-asset markets. Bitcoin and Ether, the top two coins, shed about 1% as of 12:40 p.m. in Singapore.

BNB has sunk some 17% this week, a retreat that compares with a roughly 4% drop in a gauge of the 100 largest digital tokens over the same period.

The SEC this week widened its crackdown on crypto with the action against Binance followed later by a lawsuit targeting Coinbase Global Inc. for running an illegal exchange. Coinbase has rebutted the SEC’s claims and said it’s prepared to take the legal fight all the way to the Supreme Court.

--With assistance from Sidhartha Shukla.