Binance crackdown could be 'devastating in the near-to-medium term' for crypto markets: Reporter

Axios Crypto Reporter Brady Dale discusses potential action by the SEC to crackdown against crypto exchange Binance and breaks down the implications it could have upon the broader crypto market.

Video transcript

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- Bitcoin price is up more than 4 and 1/2% today and more than 75% this year and briefly touched 30K earlier this week. But there are growing concerns about the legal pressure the world's largest crypto exchange, Binance could face. Brady Dale is the Axios Crypto reporter. He joins us now in studio. Good to see you, Sir. I want to get to the potential regulations coming down upon them. But let's start with just how big Binance is compared to the rest of the industry.

BRADY DALE: Sure. I mean, it's the biggest crypto exchange by far, ranked number one by everyone. I just took a glance at CoinGecko, which is one of the data site's numbers on it. And they said that Binance has $68 billion in crypto assets in its reserves. So just $68 billion is the amount people have entrusted to it to hold on to that they trade. It does like, probably got this number wrong, but like, like, $19 billion in trades a day. I mean, it's just-- you know, it's--

- It's a behemoth.

BRADY DALE: Yeah, yeah. And I think over 100 million users, I think, something like that, they've said, yeah.

SEANA SMITH: Well, Brady, I mean, when you take into account the legal pressure that Binance is under right now from the Justice Department, from the SEC, from the CFTC, what does all of this mean given the fact that Binance is such a large player within crypto?

BRADY DALE: Yeah, well, I mean, if something serious happened, it would be huge in the industry. But keep in mind, I mean, this is a global company, right? And the United States is a big important country, but it's just one country. And so they've tried to keep US people off of it. But the US could crack down. But it's going to have to find a way to get a lever onto Binance because it kind of exists everywhere and nowhere.

And also note, like, the things, the Justice Department, that's only been rumors so far. I mean, they haven't actually done anything yet. Everyone expects they will, but everyone's been expecting that they will.

- Do you expect action from the DOJ? There is a lot of whispers.

BRADY DALE: There's so many whispers. I wouldn't be surprised if it happened at some point. But they've also got to figure out a way to get their hands on people there. And I think they're probably ready for that.

- And would this be related to money laundering?

BRADY DALE: My guess-- yeah, if I-- all the criticisms of Binance. And they mostly go back to its early days, right, is that they have done business with people they shouldn't have done business with. So like, whether it's criminals or terrorists or whatever. So yeah, that would be my guess.

My guess is don't look for an FTX-style collapse. I think that would be a mistake to look for that for Binance. But they could get in a lot of trouble. But then that would require to shut them down. You'd have to coordinate a lot of countries to crack down all at once. Like, just the-- just the US wouldn't be enough.

SEANA SMITH: So the ripple effects then from the US. What does that look like? Are we talking about Bitcoin? I seem to be able to shrug off a lot of the concerns back at 30,000. So is this something that you think is going to have a similar effect maybe in terms of what we saw with FTX if we were to see this with Binance?

BRADY DALE: If something dramatic happened with Binance, it would be devastating in the near to medium turn for the crypto markets. And then it would completely recover like nothing ever happened, I mean, ultimately. Like, I mean, that is-- that is what would happen, I think. Like, there, yeah, it would hurt real bad. If you were the kind of investor who was looking for returns the next six to seven months, which a lot of crypto people are, not fun for you. But long-term, it's all going to be fine.

- Wow, interesting. So Gary Gensler, SEC chair, on Twitter put out this video, seemed like it may have been aimed at CZ and Binance. Let's listen to that.

GARY GENSLER: If you make securities available to American investors, you must comply with American laws. The law is clear. If you're a securities exchange, clearinghouse, broker, or dealer, you must come into compliance. Register with us and deal with conflicts of interest and disclose important information.

- Is he talking to my hands there to CZ? And what do you make of the lack of regulation going back years now?

BRADY DALE: I think everybody would love to know who Gary Gensler is talking to in that quote because he never gives a clear answer. Like, I don't know if you saw in Congress a week or so ago. The head of the House Financial Services Committee asked him six times, like, is ETH-- is the second largest cryptocurrency in the entire world, the one that everyone uses, is it a security? And he wouldn't answer the question.

And so it's like, if he won't say what anything is, like, how can anyone know what is actually in their purview? I thought Matt Levine said this really well in his column a while back. He was like, the SEC keeps saying that if you're going to trade security in the United States, you need to register with us. But we're not going to register anything to trade your securities. And we're also going to tell you what securities are.

So like, good luck this industry here. So it's just-- yeah, it is really frustrating, I think, to the industry that they're not being clear. And the real problem is that they're not grappling with is that the instruments in this industry do genuinely work in a different way. So like a most important point, like, let's say ETH was is security, right? Most people agree that ETH is a genuinely decentralized enterprise.

Well, under current securities laws, you need somebody to do quarterly reporting to the SEC. Well, who would do that for Ethereum? Nobody runs it. It's run by the internet. And yet, on the flip side, you could also say like, there's no need for quarterly reporting because all the information is just right out there in open in the open on the Ethereum blockchain.

So like, what do you need to fill out these forms for? So it's just a-- it is a very strange situation that he's putting the crypto industry in. It seems like the Biden administration is just saying the crypto industry, we don't want you here. Just get out. Then people are leaving.

SEANA SMITH: Brady, do you think the crypto industry is going to look materially different within the next year? It sounds like even if we do get a crackdown, it won't really have a massive impact on the sector. Is that fair to say?

BRADY DALE: Well, it will have a massive impact on whoever gets cracked down on. I mean, they're not going to like it. But, you know.

SEANA SMITH: But more broadly speaking--

BRADY DALE: --broader spectrum-- I think lots of changes are going to happen, though, it might not be in a year. Like, a lot of times, these downturns take a little bit longer than that. I mean, what's really going to matter in the future, everyone focuses on regulation. And this is just my view. But I've been around here for a while.

What's really going to matter is the next time somebody invents something that really gets investors excited. Like, that's what's going to actually change the industry. I mean, regulatory clarity would be nice, and it would be good. But that's not what would-- that's not what will drive the next bull market. What will drive the next bull market will be somebody making a thing people are excited to use.

- Just want to circle back quickly to Binance. If there was action, whether that's the DOJ or CFTC, how would that impact Coinbase?

BRADY DALE: Would be great for a Coinbase. I mean, like, it's the-- I mean, as long as-- I mean, keep in mind, the SEC has a wells notice against Coinbase right now. I mean, they've basically said, we're going to bring the hammer down on you too. But if that doesn't happen, yeah, the biggest exchange in the entire world, if it disappears, that will naturally be really good for the biggest exchange in the United States.

- Brady Dale, Axios. Good to see you. Thanks for coming in--

BRADY DALE: Thanks for having me.

-Appreciate that.