Financial news

The past week appears to have dealt numerous heavy blows to the crypto industry as the Securities and Exchange Commission (SEC) charged popular crypto trading platform Kraken as an unregistered securities exchange, broker, dealer, and clearing agency; while Changpeng Zhao, CEO of Binance, pleaded guilty to money laundering charges and resigned from his the position at the exchange.

On Monday, the SEC alleged that, since September 2018, Kraken has illegally profited hundreds of millions of dollars by enabling the buying and selling of crypto asset securities.

On Tuesday, Zhao announced his resignation from Binance in a post on X, after pleading guilty to failing to maintain an effective anti-money laundering (AML) programme: “Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.

“Binance is no longer a baby. It is time for me to let it walk and run. I know Binance will continue to grow and excel with the deep bench it has.”

Kraken crackdown

The SEC believes Kraken combined the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the Commission as required by law.

The lawsuit will come as no surprise to many, following the SEC’s strict focus on firms operating in the digital assets space this year. Other big-name crypto exchanges Binance and Coinbase both ended up on the wrong end of lawsuits, filed by the SEC earlier this year.

This news also does not signify the first time the SEC has taken significant action against Kraken. In February, Kraken agreed to cease offering or selling securities through crypto asset staking services or staking programs and was forced to pay a civil penalty of $30million to settle separate charges.

Binance blow

Changpeng Zhao resigned after pleading guilty to breaking US AML legislation. As a result, he will pay a $50million fine, while Binance has agreed to pay a $4.3billion settlement for its failings.

Richard Teng, previously Binance’s head of regional markets, assumed the vacant CEO position.

In an official announcement, Binance explained that after reaching this resolution and agreeing to pay the settlement, it is acknowledging its “responsibility for historical, criminal compliance violations” and will enable it “to turn the page on a challenging yet transformative chapter of learning and growth”.

“With the compliance and governance enhancements enshrined in our commitments, we can begin to share our vision for Binance’s exciting future and the future of the crypto industry. We are confident that Binance will emerge as a stronger company as we lay the foundation for the next 50 years,” its explanation continued.

With the crypto world taking two big hits from the US in the form of Binance and Kraken, could the damage prove too much to recover from? Or is the news just the latest hurdle for space to overcome? To find out, we reached out to experts to find out their take on the news.

‘A powerful testament to the crypto industry’s robustness’

As Uldis Tēraudkalns, CEO of Nexpay, explains, the Kraken and Binance predicaments are not straightforward: “This situation is neither as inherently positive nor negative. The fundamental ethos of the crypto realm revolves around decentralisation.

“Consequently, when entities like Kraken and, more recently, Binance come under regulatory and legal scrutiny, it underscores the imperative need for adherence to established rules and regulations.

“A fundamental challenge in this context pertains to the nebulous nature of regulatory frameworks within the crypto industry. The rules governing this domain remain inadequately defined, leaving considerable ambiguity. Consequently, the responsibility of ascertaining who stands on the right side of the law falls upon the courts.

“The concern arises from the SEC’s perceived tendency to formulate regulations on an ad hoc basis, coupled with the presence of companies trading in assets that bear close resemblance to traditional stocks and financial instruments. This blend of evolving regulations and asset classification poses significant challenges for market participants.

“An encouraging aspect emerges from the resilience of Bitcoin’s price amid the barrage of adverse news. Should Bitcoin continue to weather such developments as it has thus far, it could serve as a powerful testament to the crypto industry’s robustness.”

A crypto milestone?

Eric Demuth, CEO of cryptocurrency exchange Bitpanda, shared his confidence in the crypto space following the news: “Something remarkable has happened – not a setback, but a milestone!

“The crypto world faced a massive fine, yet the market didn’t even flinch. That’s right, it stood strong! This isn’t just about fines or big names in the industry. It’s about growth, maturity, and embracing regulation. This is the new era for digital assets, and I’m thrilled to be part of this revolution.

“At Bitpanda, we’ve always been champions of regulation. Our journey? It’s a saga of securing licenses across markets, earning the trust of numerous financial authorities. Our expanding network of banking partners? Proof that our approach is winning!

“It’s been tough and costly, but we’ve always aimed to be a trusted, regulated broker. We made the right decision a decade ago and stand by it. And our strategy started to pay off.”

Bringing crypto ‘into closer alignment with established financial protocols’

Bryan Daugherty, global public policy director at BSV Association, explains that the moves could have effects on crypto compliance across the globe: “The SEC’s sweeping enforcement actions against key players in the cryptocurrency sector, encompassing Kraken, Richard Heart‘s Hex and PulseChain, Celsius, Coinbase, Binance, Bittrex, and the enterprises led by Justin Sun, herald a watershed moment in US regulatory oversight of the crypto industry.

“These targeted actions against unregulated, unregistered securities and their supporting exchanges illustrate a decisive commitment by regulatory bodies to mitigate prevalent risks of fraud and mismanagement, which have long cast a shadow over the crypto market.

“a watershed moment in US regulatory oversight of the crypto industry”

“The SEC’s aggressive stance marks a pivotal juncture, signalling the onset of heightened regulatory vigilance. This paradigm shift indicates that the crypto industry will soon align with the stringent regulatory frameworks governing traditional financial institutions.

“This ground-breaking development promises to inaugurate an era of heightened standardisation and compliance, not just within the confines of the US but potentially echoing across the global stage. Such harmonisation is poised to enhance compliance practices industry-wide, bringing the burgeoning world of cryptocurrency into closer alignment with established financial protocols and norms.”

Interest in crypto remains high

Jorge Lesmes, senior director of banking and financial markets at NTT DATA UK&I, explains that the Kraken and Binance news hasn’t killed off crypto yet: “Despite exchanges collapsing and prices falling, there is still a high level of interest in crypto and there’s still billions of dollars stored in blockchain-dependant cryptocurrencies.

“As a result, I expect crypto-related cyber fraud will remain commonplace despite any collapse in the crypto market as malicious actors will be keen to exploit vulnerabilities to access the funds available.

“Moreover, crypto-related fraud will remain high as long as it is relatively easy to conduct – the industry is largely unregulated, users are semi-anonymous on crypto markets, and despite mainstream misconceptions, hackers don’t need to hack the distributed ledger technology itself, just the websites that the exchanges are hosted on to gain access to user-key pairs.”

Has crypto’s reputation been damaged too badly?

Nick Henderson-Mayo, director of learning and content at compliance eLearning and software provider, VinciWorks: “Every conviction of a crypto-bro is yet another nail in the coffin of the concept of digital currency.

“Changpeng Zhao’s guilty plea on money laundering charges proves that cryptocurrency, as it was first conceived, cannot survive anti-money laundering regulations.

“From Coinbase to FTX and now Binance, the financial services industry must seriously ask if there are any legitimate reasons left for using cryptocurrency.

“Whatever its initial designs and supposed benefits, the reality is that crypto is a volatile financial product almost exclusively relied upon by criminals to facilitate money laundering, terrorist financing, and proliferation financing.

“Every conviction of a crypto-bro is yet another nail in the coffin of the concept of digital currency”

“As more operators like Binance face fines and lawsuits, the crypto market will continue to experience greater volatility. Any legitimate investors still left will become increasingly desperate to offload their failing assets, and the entire industry will become a greater target for nefarious actors.”