Regulatory Scrutiny of Crypto Exchange “Binance” May Cause it to Leave the U.S.

Sam Schwab  

Associate Editor  

Loyola University School of Law, J.D. 2024 


State and federal regulators are opposing a billion-dollar deal between the cryptocurrency exchange Binance.US and the bankrupt cryptocurrency lender Voyager. The regulatory intervention is part of an ongoing struggle between Binance, the ultra-dominant cryptocurrency exchange, and U.S. regulators. Tensions between the two appear to be nearing a boiling point. The dispute also highlights an American regulatory environment that is increasingly hostile toward the cryptocurrency industry writ large, particularly in the wake of the FTX cryptocurrency exchange collapse.  

Binance’s U.S. presence was troubled from the start  

Binance was founded in China in 2017 and is led by its CEO Changpeng Zhao. Binance is currently the largest cryptocurrency exchange in the world by measure of daily trading volume. After the catastrophic, $8 billion failure of FTX, Binance solidified its market dominance by amalgamating an estimated 55% of world spot trading in cryptocurrency. Nonetheless, Binance was quickly banned from the U.S. due to the investigative findings of U.S. regulators – citing money laundering and tax offenses. In response, Binance.US was created specifically to comply with U.S. laws. Binance.US remains banned in at least five U.S. states. Evidently, the crypto exchange actor has been at odds with the U.S. regulatory regime from the very beginning.  


In late February, the Los Angeles Times reported that Binance (the parent company) is considering a departure from the U.S. altogether. According to an unnamed source familiar with the potential move, Binance is experiencing strained relationships with its U.S. banking partners and cryptocurrency issuers. Severing ties with banks and service firms, reconsidering major investments, and delisting certain tokens such as “stablecoin,” are all allegedly on the chopping block with regards to Binance’s U.S. presence. Once again, these moves are related to Binance itself, and not the U.S.-based operation Binance.US, which is supposedly independent. The independence of Binance.US, however, was largely called into question after reports showed that moved $400 million to a firm managed by CEO Changpeng Zhao. 


Mr. Zhao’s recent statements on Twitter seem to align with the LA Times reporting that Binance may be significantly decreasing its U.S. presence, if not completely ending it. Mr. Zhao tweeted, “Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm.” He also tweeted that Binance, “pulled back on some potential investments, or bids on bankrupt companies in the U.S. for now.” These Twitter statements from Binance’s CEO appear to comport with the LA Times anonymous-source reporting on the issue.  


Binance’s latest clash with US regulators  

Just days after the LA Times’s reporting that Binance was looking to minimize its U.S. footprint, yet another clash with U.S. regulators occurred. This time, it was reported that a deal between Binance and now defunct crypto lender, Voyager, has been met with stark opposition from state and federal regulators in the U.S. Court filings show that the proposed deal between the crypto players involves Binance purchasing the assets of Voyager to the tune of $1.02 billion. Perhaps this is an example of a “bid on bankrupt companies in the US” that Mr. Zhao’s tweet was referring to. My hunch is that Mr. Zhao was given advance notice of the regulatory block announced in court documents in the days following.  


According to the SEC, the deal may violate federal law by proposing that Binance repay Voyager’s former customers – which could prove discriminatory and unlawful. The SEC is also alleging that the proposed deal raises concerns over the security of assets at Binance.US, and that the deal did not give enough information as to whether third parties would have access to vital information regarding customers’ digital wallets. Further, the New York Attorney General’s office alleged that Voyager “illegally operated a virtual currency business within the state without a license.” All of this controversy surrounds yet another investigation into the exchange by the U.S. Department of Justice. 


Binance’s future in the US is uncertain  

Given the aforementioned avalanche of state and federal scrutiny of Binance’s operations in the U.S., along with statements from the company’s leadership and those given anonymously, it is essentially a foregone conclusion that Binance will cease to operate in the U.S.. The Binance situation is yet another cryptocurrency entity that has faced immense pressure from U.S. regulators who are turning up the heat, particularly in the wake of the FTX collapse. All of this further suggests that the crypto industry’s days of flying under the radar of U.S. regulators is long gone. It also tends to suggest that crypto giants such as Binance will likely be moving toward more favorable, less scrutinizing regulatory environments in countries that are less concerned with crypto regulation as well as business and consumer protections. As such, perhaps it is time for investors to shift toward more predictable investments, in industries that are not at never-ending loggerheads with the administrative state.