Data Analysis What Market Impact Will Binance’s $4.3 Billion Settlement Have?

Analyzing the Impact of Binance's $4.3 Billion Settlement on the Market

Author: Anatole Baguirov, CCData

Translated by: Felix, LianGuaiNews

This article mainly discusses the settlement case between Binance and the US Department of Justice (DOJ), as well as the reaction of the entire cryptocurrency market. This includes the fluctuations in BNB price, trading volume and liquidity of exchanges, and the broader impact on the cryptocurrency industry and regulatory environment.

Two days ago, Binance founder and former CEO Changpeng Zhao (CZ) was asked to resign after admitting to violating US anti-money laundering laws. This concluded a year-long investigation by the US Commodity Futures Trading Commission (CFTC) and the Department of Justice (DoJ) into Binance and CZ.

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It is worth noting that the US Securities and Exchange Commission (SEC) did not participate in this resolution, indicating potential differences within US regulatory agencies.

According to court documents, although Binance has been fined, CZ personally has to pay a $50 million fine. After pleading guilty to money laundering charges, CZ is also prohibited from participating in any Binance-related business for at least three years.

Binance Trading Volume and Market Share

CZ founded Binance in July 2017, which has since become the largest centralized exchange in the cryptocurrency industry. As of March this year, Binance’s market share reached 57%, firmly establishing its dominant position in the industry, and its market share has been steadily increasing since March 2020.

2017-2023 Binance Trading Volume and Market Share

Source: CCData

Due to the settlement with the US, Binance is required to pay approximately $4.3 billion in fines, including:

• Criminal fines of $1.81 billion
• Costs related to US customers of $1.61 billion
• Violation of U.S. sanctions regulations, charging over $898 million in fees to users in Iran and other regions

US requirements for Binance:

• CZ steps down, Richard Teng becomes CEO
• Binance is required to appoint an independent compliance monitor for a term of three years and report compliance work to the US

CZ’s departure and Binance’s settlement may have a significant impact on the industry. Some structural changes have occurred one day after the news broke.

Impact on BNB

Price and Trading Volume

Since Bloomberg first reported this news, the price of BNB has been fluctuating as more details of the settlement emerge. At that time, it was not clear whether CZ would leave or the details other than the reported $4 billion fine.

Therefore, the market has interpreted this news positively. The unresolved issues related to this case have been resolved and the regulatory uncertainty surrounding the cryptocurrency industry during the investigation has been eliminated. This has resulted in the price of BNB rising from around $248 to around $261. According to the CryptoComLianGuaire Composite Pricing Index, BNB trading volume reached $13.8 million within an hour after the event, a sharp contrast to the previous hourly trading volume of around $1.3 million.

Subsequently, the U.S. announced enforcement actions, including CZ’s guilty plea and requirements for Binance, such as an independent monitor and new leadership. As these requirements have an impact on the future of Binance, BNB dropped to a low of $225.

Source: CCData

Open Interest Contracts

The speculation caused by the pre-announcement led to a significant increase in BNB’s Open Interest (OI), which increased by over $100 million in one day. Interestingly, the OI is still close to its peak, indicating further speculation on BNB.

Exchanges analyzed include: Binance, Bitget, Bitfinex, Bybit, Bitmex, OKX

Binance Net Flows

As expected, major assets on Binance experienced capital outflows, including BTC, ETH, USDT, and USDC. Since the U.S. Department of Justice officially announced this news on November 21st at 7 pm (UTC time), the total amount of capital outflows for the mentioned tokens is approximately $800 million. There can be two interpretations here.

Binance net flows for BTC, ETH, USDT, USDC

Firstly, Binance and CZ’s guilty plea indicate increased customer risk, which might lead these customers to not want to keep their funds on Binance anymore. Due to being convicted of violating anti-money laundering regulations, Binance’s reputation has been damaged, and the trust of some customer groups has decreased. Considering the due diligence and compliance issues following the guilty plea, investors may also have doubts about Binance’s stance.

However, compared to other liquidity crises (such as the FTX crisis), Binance’s net flows are still more resilient. In fact, within one hour of the FTX crisis, nearly $1 billion flowed out of Binance in BTC alone. This comparison shows that during this period, there is a significant difference in market perception of risk between Binance and other centralized exchanges. Part of the reason may be that the U.S. government has imposed new compliance requirements on Binance, which may provide some security assurance for investors holding funds on the exchange and reduce overall counterparty risk.

Although many people expected capital outflows, the current flow data does not show this.

Binance liquidity

Liquidity is crucial for understanding the impact of this event. As expected, CCData found that liquidity was lowered in the hours leading up to the announcement, as there were anticipated fluctuations when analyzing the 1% market depth of mainstream BTC trading pairs. The peak of liquidity decline occurred at 3 PM GMT, around 30%, when the US Department of Justice announced it would announce enforcement actions later that day.

Monitoring liquidity in the coming weeks is crucial to understanding whether market participants continue to have confidence in Binance’s new leadership and compliance requirements.

Analyzed currency pairs include: BTC/USDT, BTC/USDC, BTC/EUR, BTC/GPB, BTC/BUSD

Future Outlook

The outcome of the US lawsuit against Binance will have profound implications for centralized exchanges and the entire market. By reaching a settlement through fines, Binance and even the entire industry’s ongoing uncertainty are now being resolved. The $4.3 billion settlement fee is not severe enough to impact Binance’s profitability. Therefore, it can be seen as a favorable settlement that minimizes uncertainty and prevents systemic risk in the market.

Since the Luna crisis erupted in June last year, the crypto industry has been susceptible to regulatory uncertainty, which continues to be reflected in liquidity and market sentiment. If enforcement actions become stricter or liquidity-related issues are found, the crypto industry may face another tail risk event, and the market share Binance currently holds, as well as its integration with many of the largest on-chain ecosystems, may exacerbate this risk.

Due to regulatory uncertainty in the crypto industry since the legal challenges began in March, many seasoned crypto professionals may have been waiting for regulations to be implemented. With the resolution in place, it can be expected that participants entering the market will have more confidence.

In line with the potential approval of a Bitcoin spot ETF, the crypto industry is undergoing significant structural changes aimed at further legitimization. By addressing these issues, the crypto industry can better meet the requirements for SEC-approved ETFs.

Read more: Binance’s CZ era comes to an end! Spent $4.3 billion to settle with the US Department of Justice, Richard Teng appointed CEO

Related topics: $4.3 billion mega-settlement case: CZ era comes to an end, Binance steps towards compliance

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