What does Binance leaving crypto mean for the crypto industry?

Key Takeaways

• Binance has become the latest crypto company to depart Canada amid regulatory concerns
• Canada is a small market but US regulators have also clamped down severely 
• The move by Binance amplifies the growing concern within the industry that crypto will have no choice but to move offshore

Another week, another story of regulatory woes for the cryptocurrency industry. The world’s biggest crypto exchange by volume, Binance, announced Friday that it was fleeing Canada off the back of regulatory changes in the nation. 

“Unfortunately, new guidance related to stablecoins and investor limits provided to crypto exchanges makes the Canada market no longer tenable for Binance at this time.”, the company said in a statement on Twitter. 

Unfortunately, today we are announcing that Binance will be joining other prominent crypto businesses in proactively withdrawing from the Canadian marketplace.

We would like to thank those regulators who worked with us collaboratively to address the needs of Canadian users.…

— Binance (@binance) May 12, 2023

As the tweet also notes, Canada held “sentimental value for us as the home country of our founder (CEO Changpeng Zhao)”. 

Binance may be the biggest, but it is not the first crypto firm to abandon the Canadian market. In February, the Canadian Securities Administrators (CSA) published new expectations around the registration of crypto platforms in the country, specifically around the requirement to file preregistration undertakings. 

This has proved a problem. Fellow exchange OKX withdrew from the Canadian market within a month. The decentralised exchange dYdX soon followed, and last month Paxos, who formerly issued the Binance-branded stablecoin BUSD, did the same. Now, it is Binance’s turn. 

US regulators will be watching

Pulling out of the Canadian market should not be a big issue in itself. As Binance says in its tweet, the nation represents a “small market”. The population of Canada is approximately 38 million, slightly less than the US state of California. 

Nonetheless, the developments are concerning as they come amid a broader regulatory clampdown in the US. South of the border in the US, the crypto industry is at war with regulators, and Canada’s unaccommodating stance won’t help things.

Binance itself is already under pressure via multiple investigations and complaints in the US. The most notable is a civil enforcement action filed by the Commodity Futures Trading Commission, alleging that Binance and its subsidiaries operate through “an intentionally opaque common enterprise”, with accusations including the failure “to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering”. 

SEC tighten screw

This is only part of an intense regulatory crackdown in the US. Coinbase and the SEC have been engaged in an ongoing war of words, the former threatening last week to use the UAE as an international hub amid the growing hostility in the US. The exchange has repeatedly lamented what it perceives as a lack of regulatory clarity by lawmakers. 

“It is important for regulators to set policy and THEN enforce it. Not start with enforcement before there are clear rules”, Coinbase CEO Brian Armstrong tweeted last week. 

Met with the SEC today. We’ll continue pushing for a clear rule book in the U.S. for crypto regs.

The U.S. can’t afford to fall behind on this important technology to update the financial system.

Also important for regulators to set policy and THEN enforce it. Not start with… pic.twitter.com/EaPD7wDbSx

— Brian Armstrong 🛡️ (@brian_armstrong) April 21, 2023

Chairman of the SEC, Gary Gensler, clapped back this week. He asserted in a speech at the Financial Markets Conference in Atlanta that “the rules have already been published”. He added that “there’s nothing about a new technology (such as crypto) that makes it non-consistent with the public polices that congress has laid out”. 

The comments follow a testimony in April before the House of Representatives Committee on Financial Services that slammed the crypto sector for mass non-compliance. 

“Crypto intermediaries—whether they call themselves centralised or decentralised—often provide an amalgam of services that typically are separated from each other in the rest of the securities markets: exchange functions, broker-dealer functions, custodial and clearing functions, and lending functions. The commingling of the various functions within crypto intermediaries creates inherent conflicts of interest and risks for investors—risks and conflicts the Commission does not allow in any other marketplace.”

What happens next for crypto?

Therefore, while Binance abandoning the relatively small Canadian market may not be the biggest blow in isolation, industry participants should worry about what this signals going forward. It amounts to just the latest regulatory blow in North America, and it feels like the industry is very much being pushed overseas. 

While cryptocurrency is technology and can theoretically operate anywhere, the fact of the matter is that the US is the biggest financial market in the world, and pushing firms abroad – and making it far more inconvenient for customers to access the blockchain world – cannot be good for the space. 

Blockchain is often advertised as a way to circumvent the traditional finance world. As seductive as that sounds for some, it is also the reason it is landing itself in hot water with authorities (unsurprisingly). Additionally, while branches of crypto may offer a more censorship-resistant, smoother way to shift money around and store wealth, people still need to access it from the fiat world in the first place. They also need to repeatedly bridge between the two to withdraw money, because the world is still paying for food, water, housing and every other good and service in fiat. This is why restricting crypto exchanges and other onboarding avenues in the US is a big problem for the industry’s hopes of establishing itself in the mainstream. 

So the argument that crypto can brush aside these regulatory issues, or seamlessly move abroad without impact, may be missing the point. The continued crackdown from regulators in North America is becoming a crisis for the crypto industry. Canada’s expulsion of Binance is just the latest story highlighting that fact.