Regulatory Struggle or Beginning of Stronger Crypto Exchanges?
On 30th July 2021, The Securities Commission Malaysia (SC) announced their actions against Binance for illegally operating a Digital Asset Exchange (DAX) and all DAX operators must be registered as Recognised Market Operators (RMO) with the SC [1].
The following four(4) Binance entities are ordered to disable the Binance website and its mobile apps in Malaysia within 14 days from 26th July 2021.
- Binance Holdings Limited (Registered in the Cayman Islands)
- Binance Digital Limited (Registered in the UK),
- Binance UAB (Registered in Lithuania)
- Binance Asia Services Pte Ltd (Registered in Singapore)
Furthermore, all media and marketing activities, including circulating, publishing or sending any advertisements and/or other marketing materials, whether via email or otherwise has to cease immediately from providing to Malaysian investors. Binance CEO Zhao Changpeng has been specifically ordered to ensure that the above directives are carried out.
The world’s top digital asset exchange, Binance has been under heavy regulatory challenges in recent months from regulatory crackdowns in Malaysia, Thailand, Japan; Binance is also banned from operating in the United Kingdom (UK) and Italy[3]. Failing to register with the local authorities to operate unlicensed asset exchanges, definitely attracts regulatory crackdowns.
Regulatory Struggle or Beginning of Stronger Cryptocurrency Exchanges?
With recent news on regulatory crackdowns on cryptocurrency exchanges, is it the beginning of a down fall for digital assets and the exchanges?
We do not believe cryptocurrency and exchanges would suddenly halt their operations when countries impose regulations on them. There are a few key factors that we have considered for our statement.
- Welcoming Regulatory Advisors Onboard
- Adapting to changing regulations
- Regulated cryptocurrency exchanges does exist
- Mitigating risks of exposing to phishing/ scam coin/ underdeveloped tokens
1. Welcoming Regulatory Advisors Onboard
On 27th July 2021, Binance CEO, Chang Peng Zhao (CZ) released a statement that he intends to resign as crypto exchange CEO and is looking for a successor to ensure that the company will cooperate with international regulators to become a regulated financial institute[2][3].
Before Binance went looking for a new and more capable regulatory expert; Ripple, a Blockchain start-up appointed former U.S. Treasurer Rosie Rios to its board, as the company battles a lawsuit from the Securities and Exchange Commission[8].
2. Adapting to changing regulatory
In the United States, securities are assets that has a central third-party common enterprise, mainly raised funds through Initial Coin Offering (ICO) for start-up projects[4]. This is worrisome, as U.S. Securities and Exchange Commission (SEC) Chairman Gensler believes that the majority of crypto tokens and initial coin offerings (ICOs) violates U.S. securities laws[11].
Further to co-op with regulations, Binance have been limiting traders to open new futures and derivative positions on the platform and further reducing leverage exposure for traders from 100x to 20x[5], further limiting withdrawal limits from Binance for traders yet to have verify the Know Your Customer(KYC) process[6].
Crypto exchanges could remove their tokens that mirrors off-chain securities like Tesla or Apple stocks, which Binance will cease Support for Stock Tokens on Binance.com after 14th Oct 2021 19:55 (UTC)[12].
It does not only affect centralised exchange like Binance, but DeFi platforms like Uniswap, a decentralised exchange who is now removing more than 100 tokens with characteristics ranging from tokenised stocks, mirror stocks, options and derivatives from their DeFi platform in order to co-op with the changing global regulatory requirements[7]. This may make other DeFi platforms follow suit.
3. Regulated cryptocurrency exchanges does exist
We may not need to look far for a regulated cryptocurrency exchange, Securities Commission Malaysia has recognised four(4) DAX to be operated in Malaysia. Here is the list of registered DAX:
- Luno Malaysia Sdn. Bhd.
- MX Global Sdn. Bhd.
- SINEGY Technologies (M) Sdn. Bhd.
- Tokenize Technology (M) Sdn. Bhd.
4. Mitigating risks of exposing to phishing/ underdeveloped tokens
There are several cases of fraud regarding cryptocurrencies such as the infamous Bitconnect, a high-yield investment programme released on February 2016. However, on 17th January 2018, it shut down and BCC prices crashed by 92% instantly .
The most recent case was on 29th May 2021 when DubaiCoin was listed on the decentralised exchange and allowed retail investors to invest. It grew 1000% in 24 hours then there were claims that Dubaicoin is a phishing scam by Dubai’s government[9][10].
Scam news related to cryptocurrency projects are broad and inestimable, in 2020, there were almost 26,500 cases reported to the government with losses amounting up to $419 million[13].
To wrap things up, we may see how and why authorities would facilitate this technology in the “interest of investor protection”. Some degree of regulation is required to protect investors from fraud or overexposing investors to extremely high leverage, but not to an extend that could limit innovations.
Reference:
[1] Security Commission Malaysia (2021): SC takes enforcement actions on Binance. Available at: Link(Accessed: 2 August 2021).
[2] Nagarajan.S & Shumba.C (2021) : Binance is on the hunt for a CEO. Market Insider, Available at: Link(Accessed: 2 August 2021).
[3] Maishera. H (2021) : Are Binance’s Regulatory Struggles Just Starting? Binance Now Banned In Malaysia. Yahoo Finance. Available at: Link(Accessed: 2 August 2021).
[4] Congressional Research Service (2021): Digital Assets and SEC Regulation. Available at: Link(Accessed: 2 August 2021).
[5] Crawkey.J (2021) : Binance to Wind Down Derivatives in Europe; Malaysia Orders Closure. Coindesk. Available at: Link(Accessed: 2 August 2021).
[6] McSweeney.M (2021): Binance shrinks non-KYC withdrawal limits as crypto exchanges face regulatory pressure. The Block. Available at: Link(Accessed: 2 August 2021).
[7] Post.K & Chaparro.F (2021) : Uniswap Labs restricts access to certain tokens through its interface, citing ‘evolving regulatory landscape’. The Block. Available at: Link(Accessed: 2 August 2021).
[8] Browne.R (2021) : Ripple appoints a former U.S. treasurer to its board amid legal fight with the SEC. CNBC. Available at: Link(Accessed: 2 August 2021).
[9] Dubai Media Office (2021): Dubai Coin Scam Alert . Twitter. Available at: Link(Accessed: 2 August 2021).
[10] Sommerlad. J (2021): DubaiCoin — Controversial new crypto shots up 1000% in 24 Hours amid ‘scam’ claims. Independent. Available at: Link(Accessed: 2 August 2021).
[11] De. N (2021): SEC Chairman Gensler Agrees With Predecessor: ‘Every ICO Is a Security’. Coindesk. Available at: Link(Accessed: 3 August 2021).
[12] Binance (2021): Ceasing Support for Stock Tokens on Binance.com and Migration to CM-Equity AG for EEA Users. Binance. Available at: Link(Accessed: 3 August 2021).
[13] Caporl.J (2021): Study: Crypto and Investment Scams Skyrocket in 2020 and 2021, The Motley Fool. Available at: Link(Accessed: 7 August 2021).