YEREVAN (CoinChapter.com) – Binance, the largest global crypto exchange, and its in-house token BNB face scrutiny from the U.S. Securities and Exchange Commission (SEC).
As CoinChapter reported, the SEC is probing Binance amid an exposé from Reuters involving the exchange’s alleged $2.35 billion money laundering and lack of transparency. However, the main focus stands on BNB’s securities status. So will BNB face XRP’s fate?
Binance under the SEC’s microscope
The U.S. regulators are investigating whether Binance Holdings Ltd, the company behind the exchange, broke securities law by selling digital tokens in 2017.
Binance representatives did not disclose investigation details but affirmed the company’s preparedness to follow the regulators’ guidelines.
It would not be appropriate for us to comment on our ongoing conversations with regulators, which include education, assistance, and voluntary responses to information requests. We will continue to meet all requirements set by regulators.
SEC enforcement investigation may not lead to a lawsuit like in the case of XRP. The probe involving BNB might be months away from any conclusion. Meanwhile, Binance faces investigations from the Justice Department, the Commodity Futures Trading Commission, and the Internal Revenue Service.
However, an XRP-like experience is a possibility.
Are BNB and XRP similar?
In detail, the SEC vs. Ripple case over the XRP token has been ongoing since Dec. 2020.
XRP is unregistered securities, claims the prosecution, while the defense argues that XRP is no different from Bitcoin (BTC) or Ethereum (ETH), evoking the Hinman speech. However, the SEC’s principle of probing crypto tokens lies within the initial coin offering (ICO) process.
The agency’s website specifies that ICOs can be considered securities “based on specific facts.” However, it does not indicate what those “specific facts” are.
While some ICOs may be attempts at honest investment opportunities, many may be frauds, separating you from your hard-earned money, with promises of guaranteed returns and future fortunes. They may also present substantial risks for loss or manipulation.
The SEC has brought dozens of enforcement actions over ICOs in the past. Meanwhile, the guidelines are vague, which is not uncommon for SEC’s cryptocurrency regulations. In addition, XRP and BNB were released to the public through an ICO process. Thus, BNB could also invite further scrutiny.
BNB price crash ahead?
The lawsuit against Ripple affected XRP’s credibility and dropped the token price by 63% within two weeks after the filing. Several delistings and ceased partnerships followed. Finally, XRP accomplished a three-digit comeback in 2021, catching the crypto explosion tailwind.
Will Binance follow the same path? It is not yet clear. However, the token currently has a market cap of $47.5 billion, making it the fifth-largest cryptocurrency. BNB largely followed Bitcoin’s lead amid the recent price crash and traded at under $290 on June 9, 56% lower than the local high on Nov 1.
If scrutiny from the SEC continues, then BNB will lose its #5 spot. But further repercussions also depend on public opinion and investors’ willingness to back the token, and Binance might not fair well on transparency.
Binance lacks transparency?
Ahead of the ICO, the company specified the plans in its whitepaper. The document stated that 200 million BNB tokens would go into circulation, while 80 million would remain within the founding team, including the CEO Changpeng Zhao. Moreover, the whitepaper vouched to use 85% of the ICO-raised funds to market Binance’s crypto exchange.
However, the company is not transparent with its corporate structure and operations, which prompted some experts to side with the SEC’s concerns. For example, Zoltan Kormanyos, general counsel at the international broker comparison website BrokerChooser commented on the matter. BNB is “a prime example of potential conflict of interest and market fairness issues.”
BNB only imitates crypto as it is issued entirely privately, traded on different exchanges and Binance controls absolutely everything about it and it works however the company needs it to at the time
Kormanyos also evoked the duck test, saying, ‘if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.’ When translated into the financial sphere, the duck test says “same function plus same risk equals same regulation.”
Crypto exchanges tend to use concepts and products coming from traditional finance. Meanwhile, they also try to argue that these things should be treated differently by regulators because they exist within the crypto ecosystem (i.e. outside of traditional finance).
It is unclear whether Binance’s BNB coin will face the same ICO consequences as XRP. However, while the SEC’s guidelines on the ICOs remain vague, the regulators pay increased attention to crypto exchanges. Therefore, the upcoming months will show if the XRP case can resolve before BNB scrutiny goes any further.
Lilit is a Yerevan-based Markets writer, skilled in 3 languages, and interested in writing about the tech world, trading, art, and science. She also has a background in psychology and marketing, which helps deliver the right message to the target audience.