Breaking: US Department of Justice Considering Fraud Charges Against Binance Crypto Exchange

Binance Logo / Source: Adobe

The US Department of Justice (DoJ) is mulling whether to press fraud charges against Binance, as per a Semafor report.

However, as per the report, the DoJ is worried that if it indicts Binance, it could trigger a rush to withdraw balances on the exchange, similar to the rush that brought down FTX last November.

They worry this could result in customers losing money, as well as cause a fresh bought of panic in the broader crypto market.

Crypto markets came under modest sell pressure in wake of the report breaking across newswires.

Bitcoin (BTC) dropped from the $29,300s to test the $29,000 level.

Ether (ETH) dropped from around $1,845 to fresh daily lows near $1,820 before recovering somewhat to the $1,830s.

BNB (BNB), the cryptocurrency that powers the smart-contract-enabled Binance Smart Chain, fell as much as 3% on the reports, before recovering around 2%.

DoJ prosecutors are considering compromise options such as fines and deferred or non-deferred prosecution agreements that would reduce harm to the consumer, whilst still holding Binance accountable, the Semafor report said citing people familiar with the matter.

Reports that the DoJ is mulling charges against Binance come after the US Securities and Exchange Commission sued the exchange, which is far and away the world’s largest and most influential, and its billionaire founder Changpeng Zhao.

The SEC hit Binance with 13 charges, which included operating as an unregulated securities exchange in the US, as well as commingling investor funds.

The US Commodity Futures Trading Commission (CFTC) has pressed similar charges against the firm.

2023’s Biggest Black Swan Risk

As per CoinGecko’s Q1 2023 Crypto Industry Report, FTX had a 5% market share of the spot crypto trading volumes across the top 10 cryptocurrency exchanges last October.

Its subsequent collapse in November sent shockwaves across the crypto market, with bitcoin dropping nearly 25% in two days.

In July 2023, as per data presented by The Block, Binance’s market share of spot crypto trading market activity stood at around 47%.

Given its comparatively much more dominant position in the market, it makes sense to assume that if Binance followed the fate of FTX, the crypto market crash would be significantly worse.

Could we be looking at short-term losses of 50%?

In a Binance collapse scenario, traders should not rule out the possibility that things could get even worse than this.

A potential Binance implosion could be the biggest black swan risk to the crypto market right now.

Could Binance Follow FTX’s Fate?

FTX folded because of a “bank run” on fears about the strength of its balance sheet, fears which were in the end well-founded after FTX was forced to halt withdrawals because it didn’t actually have enough crypto to fulfill customer withdrawal requests.

But should we be concerned about Binance’s balance sheet in the same way?

According to Binance, it is possible to verify that the exchange is holdings its user’s asset 1:1, plus reserves, via its so-called Merkel Tree.

As per its website, Binance claims that the ratio of its bitcoin holdings to customer net balances stands at 104.3%.

So, as things currently (appear to) stand, even if the DoJ did hit Binance with fraud charges and customers did start withdrawing, this shouldn’t be a problem, as Binance would be able to fulfill all withdrawal requests.

That should itself ease customer fear, deterring them from panic withdrawing.