Binance mulls US pullback as crypto crackdown escalates

Crypto giant Binance Holdings is considering ending relationships with US business partners as regulators turn up the heat.

The company, which runs the world’s largest crypto exchange, is considering the retreat after its relationship with a central bank partner and stablecoin issuer ran into trouble amid intense government scrutiny, according to a person familiar with the matter. Binance has been investigated by the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Department of Justice and the Internal Revenue Service.

Binance Holdings is considering whether to sever ties with intermediary firms such as banks and service firms and is reconsidering venture capital investments in the United States, according to the person, who asked not to be identified and discussed details that were not yet disclosed. It will consider removing tokens from all US-based projects, including Circle’s stablecoin USD coin, the person said.

Binance Holdings is not authorized to serve crypto customers in the United States. Instead, it’s Binance.US, a far smaller exchange that claims to be independent and said it has no plans to leave the US

Binance CEO Changpeng Zhao signaled the potential withdrawal last week. “Given the ongoing regulatory uncertainty in certain markets, we will consider other projects in these jurisdictions to ensure our users are insulated from any undue harm,” Zhao so on Twitter after Paxos Trust Co. announced that they would stop issuing the Binance-branded stablecoin.

On Friday, Zhao tweeted that Binance had “pulled back on any potential investments, or bids on bankrupt companies in the US for now.” He said it is “false” that Binance would remove all US-based tokens.

If it begins to limit or end its ties with US firms, Binance Holdings will not be the first – or last – digital asset firm to distance itself from the market amid the regulatory crackdown following the collapse of crypto exchange FTX. Nexo Inc. announced in December plans to phase out its products and services in the U.S. market after halting and forgoing orders from several states. More departures are likely as U.S. officials aggressively rein in an industry whose unchecked growth could eventually rattle the traditional financial system.

“Like any other blockchain company, we conduct a careful cost-benefit analysis and will pivot our business as needed to protect our global user base,” a Binance spokesperson said.

Binance ended 2022 on top, positioning itself as an exchange that had been relatively unscathed by the crypto winter. After FTX failed, Binance consolidated its dominance in the market. In January, it accounted for 55% of the world’s spot crypto trading, according to CryptoCompare data.

In the last week, the cut has taken its toll. The international stock exchange experienced a net outflow of 1.9 billion dollars in assets, according to data estimates from Nansen. The crackdown on Binance stablecoin BUSD, issued by Paxos, has triggered $2.3 billion in token redemptions from February 13 to Thursday.

Recent actions by US regulators, including increased warnings to banks about crypto ties, are increasingly isolating Binance and other players.

Earlier this month, Binance suspended US dollar deposits and withdrawals using customer bank accounts after Signature Bank pulled out, Bloomberg previously reported.

Reuters, citing company filings and bank records, reported on Thursday that Binance moved more than $400 million in the first quarter of 2021 from a bank account of Binance.US, which is said to be a separate exchange designed for the US market, to a trading company managed by Zhao.

Binance.US responded with one statement on Twitter on Thursday, saying that “while there was a market-making firm named Merit Peak operating on the Binance.US platform, it stopped all activity on the platform in 2021.” It said Binance.US has never traded or lent customer funds.

On February 13, Paxos Trust, Binance’s stablecoin issuance partner, said it was ordered by the New York State Department of Financial Services to stop issuing new Binance USD stablecoins.

Paxos also received a notice from the SEC saying the agency was considering recommending an action alleging that Binance USD is an unregistered security.

Binance previously had regulatory compliance gaps that have since been closed, chief strategy officer Patrick Hillmann said in an interview Wednesday. It is in settlement discussions with U.S. regulators, but Hillmann said he could not provide a timeline or potential settlement amounts.

The US crackdown could move more crypto projects offshore.

“When you stop access in the US financial system, you will see two effects – overall, there are less dollars going into the system, but it is also important to remember that the US is not the only place to move money, so you will strengthen offshore suppliers,” said J. Austin Campbell, assistant professor at Columbia Business School.

Bloomberg staff writer Olga Kharif contributed to this report.