Binance leaves regulators behind

As crypto markets struggle to find a bottom in price, regulators in multiple countries are struggling to get a grip on how to integrate cryptocurrencies into their world.

One of the big concerns of regulators is pretty obvious: They consider most Initial Coin Offering (ICOs) to be securities. Yet many crypto exchanges that include ICO tokens on their platform are not registered as broker-dealers. Nor are they licensed to trade securities.

The big fear in the crypto world is also obvious: Issuers, investors and exchange owners have been worried that regulators will deem the ICOs illegal, use ICOs as the rationale for cracking down on the exchanges, and then shut them down.

But we’ve said it before and we’ll say it again. All this talk about cracking down truly misses the point:

Cryptocurrencies are borderless.

So, when country A decides to outlaw a sector of the industry, all they accomplish is to drive crypto innovators to country B, C or D.


Image source: ICO Crowd

Binance is the perfect example of regulators on an impossible mission.

Binance didn’t start operating until the second half of 2017. But in less than a year, it has become the largest crypto exchange in the world.

A key factor behind Binance’s success: It has been very receptive to the idea of accepting new coins onto its platform, including tokens that most regulators define as securities.

Binance operates out of Hong Kong. But the folks behind Binance have realized that Hong Kong’s Securities and Futures Commission (SFC) didn’t particularly like the manner in which they were adding new token pairs to their platform.

Result: Binance made plans to move to Japan. They were aware that Japan has been quite crypto-friendly. They’ve no doubt watched carefully as Japan openly embraced cryptocurrencies and sought to integrate them into society.

But on March 23, Japan’s Financial Services Agency (FSA) issued a warning to Binance representative Changpeng Zhao “regarding persons who do not register and carry out virtual currency exchange business” (無登録で仮想通貨交換業を行う者について).

The FSA did not provide details. But it doesn’t take a genius to figure out that it’s most likely related to some of the tokens that are listed on the Binance platform — tokens they consider securities.

Sound familiar? It should. Because it’s the same posture we’ve seen regulators take almosteverywhere. I stress the word “almost” because the saga doesn’t end there.

Off to Malta

At Binance, listing lots of tokens is key to their success — a big reason why crypto investors go there to trade.

And so, in a move that surprised many, Binance announced last week that, instead of moving 2,900 miles Northeast (to Tokyo), they’ll move 5,800 miles West (to the island of Malta).


Why? Because Malta Prime Minister Joseph Muscat wants them. In fact, he personally laid out a welcome mat on Twitter.


What have the authorities of Hong Kong and Japan accomplished in the end?
 A few things …

First, they are losing a major player and innovator in the crypto space.

Second, they are giving Malta, a small country with the same population as Nagasaki, the opportunity to become one of the crypto capitals of the world.

And third, in an ironic twist of events, they have also given a nice gift to Binance itself: Unlike the authorities of Hong Kong or Japan, the friendlier jurisdiction of Malta will enable Binance to upgrade its exchange to also start accepting fiat currencies!

In fact, until now, this has been one of the main limitations with Binance. Yes, it’s good for trading crypto. But you still need another exchange to trade in and out of fiat. Now, with this move to Malta, Binance may be able to offer one-stop shopping, helping to make it a go-to place for crypto traders.

See the lesson here?

1.  Governments of two of the world’s largest financial centers — Hong Kong and Japan — essentially tell the operators of a borderless business they’re not allowed fully operate within their borders.

2.  The borderless business moves offshore to a new, friendlier jurisdiction.

3.  The borderless business announces plans to expand even further.

4.  Hong Kong and Japan lose the opportunity to be hosts to a very innovative industry that continues to grow and expand at an unprecedented pace.

Warning: The regulators have a point. Most ICO tokens are trash. But the crypto industry and regulators will need to work in close cooperation to deal with them.

Our recommendation: Reliable data and more risk disclosure to investors.

Best,

Juan

About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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