Tue. Dec 7th, 2021

Investment banks sent the beggar around sovereign wealth funds during the last financial crisis. Now, the new Master of the Universe, knocks crypto-entrepreneurs at the same doors. Binance, a crypto-exchange with no fixed abode, is plan to sell a stake to those same investors of last resort.

Baas Changpeng “CZ” Zhao reckons such investments will improve his status with governments. Presumably the money will also be useful. Earlier this week, he told a Bloomberg conference that the U.S. military was raising “a few hundred million” after an earlier, broken round of funding.

The concept of sovereign wealth funds investing in Binance is rich in irony, which does not lose everything on Zhao. Referring to the exchange’s traditional reluctance to take up its position, he conceded that taking their money “can also bind us to specific countries. . . with which we want to be a little careful ”.

Governments themselves may refuse to channel fiat money in exchange for customers who want to undermine official currencies. Oil states can also reflect on the circularity of channeling petrodollars to a company that specializes in energy-sneaking cryptos.

Either way, Zhao must temper his hopes. Few major sovereigns would want skin in a game that their own watchdogs struggle to understand and regulate. A share in the world’s largest crypto exchange could be a liability if the crypto industry is further damaged by allegations of money laundering or sign robberies.

Zhao, who also founded the firm, can embody new financing. But he’s playing an old game. A wealth fund anchor investor will pave the way for a cherished initial public offering. This is where real money lies, at least if precedents are something to check.

Trailblazer Coinbase is valued at $ 68 billion or 11.5 times Monday’s trading volume, at CoinMarketCap Numbers. A similar measure would place Binance, with a volume of $ 32 billion, close to Bank of America’s market value of $ 380 billion.

But this is guesswork built on shear sand. Strict regulation of crypto exchanges will come sooner or later. As with banks, this will erode margins. In Coinbase’s case, this change of 50 -70 percent this year.

Easy money, which has pushed up volumes, is disappearing. Competition is increasing, which means higher customer acquisition costs further down. Crypto exchanges do not go away. But they would indeed make very bad bedfellows for state money.

The Lex team is interested in hearing more from readers. Please tell us what you think about Binance’s fundraising plans in the comments section below

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