Mon. Dec 6th, 2021

Pinning Binance, the world’s largest cryptocurrency exchange, is a difficult business. It had no headquarters. This is no coincidence. Such ties tend to bring regulatory requirements and the risk of watch dogs calling if things go wrong. The UK’s financial regulator has shut down Binance’s failure to respond basic queries were one reason why it was impossible to supervise.

If we are to believe Binance, his peripatetic attitude is about to change, as is his truculent attitude toward regulation. It is ready to announce its global headquarters. Its CEO, Changpeng “CZ” Zhao, is in talks with guard dogs from Singapore to France to Dubai – where he has just become a homeowner. The company also recently a manifesto published stated that regulation was “inevitable”. This is apparently a welcome changed from six months ago, when Binance largely shrugged off the scrutiny of regulators around the world. As part of Binance’s attempt at rapprochement (which also involves a new head of communications), Zhao claims that Binance is suing for big tickets investment of sovereign wealth funds.

It is difficult to extract bravado from reality in the cryptosphere. Binance is careful about which SWFs are on its dance map, and has not provided any details on how far any discussions are, nor the nature of investment. Sound skepticism is required. But on the face of it, as sophisticated investors, SWFs can impose a transparency on Binance that has remained elusive so far.

Much will depend on what SWF invests, if any. Equally significant is Binance’s choice of headquarters; the two may be intertwined. Zhao’s logic seems to be that being supported by a SWF would, of course, lead a country’s regulator to be more open-minded. This is not ridiculous in some jurisdictions. The idea is also not that a SWF can invest in Binance, which says it is recording daily trading volumes of $ 170 billion.

Singapore, where Zhao lives (at least temporarily), is certainly a contender, both for investment and Binance’s home. Singapore wants to be seen as a crypto-friendly jurisdiction. While the Monetary Authority of Singapore is no push – it put on an investor alert even though it left the company’s local website alone – the regulator is innovating and investigating a possible central bank digital currency.

Meanwhile, Singapore’s wealth fund GIC and the country’s investment giant Temasek are comfortable investing in crypto exchanges. Temasek was under several blue-headed investors who plow $ 420 million into FTX. A fund owned by Temasek has already supported Binance’s Singapore arm, now led by a former MAS official. SWFs are focused on potential returns from exchanges, the value of which is linked to bitcoin’s rising price. The proviso is the risk that regulation poses to business models. Especially for exchanges, where the real world and the cryptosphere intersect, the risk is acute: watch dogs are rightly concerned about the large number of armchair investors who could lose their shirts, and about the ability of criminals to launder poorly earned profits.

Ties with an established market such as Singapore can reassure regulators elsewhere. Less welcome would be if Binance buys its way into a lighter-touch jurisdiction, where it can carry the imprimatur of a local license without reviewing compliance, to continue to push products around the world. As long as countries’ attitudes towards crypto differ greatly, arbitrage will continue. Zhao is right that regulation is coming, and that it can protect users without suppressing innovation. But the distasteful probability is that it will be slow and bypassable, especially for a company as footless as Binance.

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