Charges against Binance may sharpen regulatory gaze on Indian crypto industry: Experts

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Indian crypto industry players and insiders termed the charges against Binance and Chief Executive Officer (CEO) Changpeng Zhao's (CZ) stepping down an expected closure, following months of uncertainty and a probe into the world’s largest crypto exchange. This, however, will create short-term hiccups in the ongoing policy negotiations between industry players and regulators globally for a common regulatory framework, they said.

Binance and CZ pleaded guilty on November 21 for breaking US anti-money laundering laws and will be paying out $4.3 billion in settlement following years of probe. Additionally, CZ will be paying $50 million under the deal, which requires him to step down as CEO. He was found guilty of violating the Bank Secrecy Act in a federal court in Seattle.

The crypto exchange was charged with conducting an unlicensed money transmitter business, conspiring, and breaching sanction regulations, to name a few.

This comes barely a year after the collapse of Sam Bankman-Fried’s FTX, which shook the crypto world. CZ was an early investor in FTX too.

Moreover, since the implementation of a 30 percent tax on crypto gains and a 1 percent tax deducted at source (TDS) on transactions in India, industry players believe a lot of their transaction volumes (which dropped by more than 85 percent) have moved to offshore crypto exchanges, majorly Binance.

CZ’s exit will be a major turning point for the crypto industry globally, and it has not missed the eyes of the regulators in India either. Rajeev Chandrasekhar, Minister of State for Electronics and Information Technology, took to X (formerly Twitter) to highlight this, saying there is a “lesson to be learnt from Binance, FTX and other "crypto" companies.”

“Using new technology to break the law does not make you a disrupter. It makes you a criminal. PM @narendramodi ji govts approach since 2022 to deterring crypto speculation has saved countless Indians from crypto meltdown & losses,” he said.

Kashif Raza, co-founder of crypto regulatory news analysis platform Crypto Kanoon, said, “This will create a lot of concerns globally. Right now, the US has settled their case. Now every country will scrutinise how Binance is being used in their country, especially India.”

Raza added that while Indian exchanges are very compliant, the Indian government might need to come up with rules for retail investors trading on foreign exchanges; even ask foreign exchanges to obtain licenses in India, similar to the US.

Citing a recent study done by ESYA centre, Sumit Gupta, co-founder and CEO of CoinDCX shared that 3-5 million Indians and more than 90 percent of the traffic has shifted to offshore exchanges.

"Given the circumstances, it concerns us that these users are trading on platforms that are not registered in India and do not follow the laws of the land, especially with respect to the PMLA guidelines," he told Moneycontrol.

According to Sharan Nair, co-founder of crypto data start-up PYOR and former Chief Business Officer at CoinSwitch, this will create “slight hiccups in the ongoing regulatory negotiations since Binance is a well-known name even for regulators.”

“So this development might create some sort of distrust amongst regulators for other players too. But overall, there is a silver lining to this: it gives regulators the confidence that they have control over the industry and that they will be able to regulate this industry well,” he said.

He added, “There have always been concerns around how Binance has been running its operations. So it's not very surprising what has happened.”

Indian crypto players remain bullish

Indian crypto industry has unanimously called this a positive move for the sector in the country, which has been reeling under regulatory uncertainties, high taxes and consequently falling trading volumes.

According to Ashish Singhal, co-founder and CEO of CoinSwitch, the ecosystem will grow stronger from hereon as it reduces uncertainty and creates room for more players to enter the market.

“The past few hours have seen some of the biggest developments in crypto unfold. In my view, stringent safety standards and compliance are necessary for the crypto ecosystem to grow responsibly,” he told Moneycontrol.

Rajagopal Menon, Vice President, WazirX, concurred. “There has been a lot of fear, uncertainty, and doubt amongst crypto investors in the last few months due to various regulatory investigations on Binance. This action by US law enforcement brings that mystery to an end.”

WazirX, India’s largest crypto exchange, and Binance have been in a dispute over ownership since 2022. Earlier, it was known that Binance had acquired WazirX in 2019, which was later denied by CZ in August 2022.

Unocoin’s co-founder and CEO, Sathvik Vishwanath, drew parallels with the downfall of FTX, where founder Sam Bankman-Fried was convicted of fraud.

“Despite their initial collaboration, relations soured, leading to Zhao selling his FTX investments. Both cases reflect the regulatory challenges and legal scrutiny faced by cryptocurrency exchanges, impacting the crypto world's stability and reputation,” he said.

Vishwanath believes this is a pivotal moment for Indian investors and traders to transition to compliant local exchanges, unaffected by recent international regulatory challenges. “Those who traded on global platforms face minimal impact for now, as withdrawals and trades continue normally,” he said.

Crypto research firm CREBACO Global’s founder, Sidharth Sogani, called CZ’s voluntary stepping down a good sign. “It shows maturity and a sense of responsibility by him. He has appointed Richard, who is experienced. So I don't think it will impact the operations of Binance.”

Impact on token prices

The biggest crypto exchange, Binance, and one of the most influential voices in the global crypto industry, CZ, facing criminal charges, will be a blow to many investors in crypto tokens.

Experts expect a near-term fall in crypto token prices, with Binance Coin taking the biggest hit.

“There is certainly a fall in crypto prices, with Binance Coin being the biggest loser. I think for major crypto assets, the price will climb back,” Nair said.

Sogani said, “We have seen a slight correction in overall crypto prices. But it wasn't a panic situation. I think Binance Coin will not perform the way it used to. Let's see.”

Vishwanath said that as per the US Securities and Exchange Commission (SEC) suits against Binance and Coinbase, 69 crypto tokens were identified as securities, including Cardano (ADA), Solana (SOL), Polygon (MATIC), Binance Coin (BNB), and XRP, which has been a contentious issue between the SEC and Ripple Labs since 2020.

Other named assets include Algorand (ALGO), Filecoin (FIL), and Cosmos (ATOM). Many projects assert compliance with securities laws, emphasising their creation and launch outside the US. The exhaustive list includes assets like Tron (TRX), BitTorrent (BTT), and EthereumMax (EMAX).

What’s next for CZ and Binance?

CZ made the announcement of stepping down in a post on X. Richard Teng, the company’s global head for regional markets, was appointed the new CEO.

Teng comes with over three decades of experience in financial services and dealing with regulatory aspects. Prior to joining Binance, he was the CEO of the Financial Services Regulatory Authority at Abu Dhabi Global Market (ADGM), Chief Regulatory Officer of the Singapore Exchange (SGX), and Director of Corporate Finance at the Monetary Authority of Singapore.

CZ called Teng a “highly qualified leader, with over three decades of financial services and regulatory experience,” who will navigate the company through its next period of growth.

While CZ will continue to remain close to the company as a shareholder, founder, and former CEO and continue to consult the team when needed, he is going on a break for now.

“I have not had a single day of real (phone off) break for the last six-and-a-half years,” he said.

Post that, he will be looking to passively invest -- becoming minority token/shareholder in startups in areas of "blockchain/Web3/DeFi, AI and biotech."

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…

— CZ Binance (@cz_binance) November 21, 2023