Did you hear that thunderous roar? That's the SEC charging at Binance with 13 hefty allegations. And it's not just Binance feeling the heat; several major crypto assets (incl. SOL, MATIC and ADA) have been dragged into the fray, tagged with that dreaded 's' word - securities.

So, here's the burning question: Is Binance heading towards an FTX-like meltdown? And more importantly, what does this mean for our investments?

We're about to dive deep into this intricate web of legal and financial implications, so hold onto your seats. It's time for a rough ride through the crypto regulatory storm!

TLDR 📃

• Binance is facing a US lawsuit with 13 charges, including illegally offering securities-related services, intermingling international and US entities, and wash trading.
• BNB, BUSD, and BNB Vault are being viewed as securities offered on the US platform.
• The SEC has received cooperation from Binance employees, further complicating the case.
• There are severe allegations that Binance's CEO, CZ, funnelled customer funds to his own trading firm, Merit Peak Limited. Much like SBF did with Alameda.
• If proven true, these allegations could lead to serious fallout, possibly even a BTC drop below $20,000.
• We suggest you stay safe by not keeping funds on Binance until the situation becomes clearer.

Disclaimer: Not financial nor investment advice. Any capital-related decisions you make is your full responsibility.

What is Binance being accused of this time? ⚖️

Binance is back in hot water with a US regulator. This isn't their first rodeo, as previous allegations echo the recent lawsuit by the CFTC.

Here's the lowdown on the SEC's 13 charges against Binance:

1. They're accused of illegally offering securities-related services to American customers.
2. BNB, BUSD, and BNB Vault and their staking products are seen as securities offered on the US platform.
3. Binance's international and US entities are allegedly too intermingled, despite being expected to remain separate.
4. Sigma Chain, a trading firm owned by Binance's CEO CZ, is charged with wash trading to inflate asset volume and prices on Binance US.

The first charge mirrors the CFTC's accusation, but the SEC is calling Binance US an illegal securities exchange instead of a commodities platform.

And get this – the SEC even has a Binance employee admitting it!

That said, accusations can be settled.

The SEC's claim that assets like BNB and BUSD are securities isn't a shocker. With SEC Chair Gensler seeing almost every cryptocurrency as a security, not labeling them as such would have been the real surprise.

There's even evidence suggesting CZ had control over Binance US, supposedly an independent entity. Former CEO Brian Brooks and other employees have reportedly spilled the beans to the SEC.

This makes the SEC's job a lot easier in starting a case against Binance

But it doesn't stop there. The SEC claims that Sigma Chain, CZ's trading firm, engaged in 'wash trading' from September 2019 to June 2022. This alleged practice falsely inflated token exchange numbers on Binance. US.

While wash trading may not be the crime of the century, if the allegations are true and it's a firm owned by CZ, this transforms the issue into one of fraud and self-dealing.

Yet, the most damning claim might be the one not yet mentioned. If true, it could drastically alter the narrative surrounding CZ…

Is CZ operating like SBF? 🥷🏼

Now this is the big blow.

The SEC alleges that Binance funnelled customer funds to Merit Peak Limited, a trading firm owned by none other than Binance's CEO, CZ.

This firm is a market maker on Binance US, much like Alameda's role with FTX. This lands CZ in hot water, drawing parallels between him and SBF, who faces criminal charges for the same issue.

This implies Binance might be playing fast and loose with your money – far worse than any other accusations so far.

So as a user, you might shrug off some legal issues with Binance. But hearing that they could be messing with your money? That's enough to make anyone sweat.

These are just allegations for now, but if proven, they might spark off the 2022 nightmare all over again. With Binance's major role in the crypto scene, it wouldn't be shocking to see Bitcoin plunge below $20,000 or hit new lows.

Binance, for its part, has fiercely rebutted the SEC's charges, expressing dismay at the Commission's decision to file a complaint.

They insist they've been cooperating fully with the SEC's investigations and tried to negotiate a settlement.

But don't just take Binance's word for it. There are other ways to gauge the gravity of these allegations.

When do we know if these allegations are serious?

Here's a little lesson we learned from FTX: actions speak louder than words. To gauge the real threat of the SEC's claim, keep an eye on withdrawal activity from Binance.

About $1 billion has already been yanked from Binance - quite a hefty chunk to exit an exchange.

Yet, this isn't Binance's first trial by fire. On December 14th and January 30th, over $4 billion bolted the exchange each time, but Binance weathered the storm.

At this stage, crunching this data is crucial. It offers insight into how other investors perceive the risk of Binance mishandling funds. If we see a $4 billion exodus again, that's your cue to take this way more seriously.

And in case you were wondering, Binance isn't the only target in the SEC's lawsuit. As in any battle, there's bound to be collateral damage.

The last dirty trick of the SEC

Thought the SEC was done?

In lawsuits like this, the SEC often stamps assets as securities without giving defendants a fair shot at a counterargument. This is precisely the approach taken in the Binance lawsuit.

While Binance is the main target, the SEC has flagged 12 tokens listed on the platform - BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI - as securities.

The SEC makes a case for each token's security status, but the murky legal landscape around tokens gives them the liberty to label any token as such. Their claims only hold water if backed up in court.

Sadly, even baseless allegations can dent these tokens' reputations, leading to potential price dips, as we witnessed with XRP. SEC-induced perception caused XRP to underperform during the bull run.

This led to it lagging behind BTC and ETH.

Interestingly, in this case, the SEC's arguments echo those from the Ripple lawsuit. However, the mention of these tokens isn't likely to impact them as severely as XRP since the SEC hasn't sued these specific projects.

So, while we might see some price ripples, it's highly unlikely that any of these tokens will suffer like XRP unless the SEC decides to sue the projects directly.

For instance, the SEC claimed nine tokens were securities in the lawsuit involving a Coinbase employee and his brother over insider trading. Instead of proving this in court, the SEC settled without naming the so-called securities.

That's why this lawsuit won't rattle those tokens much. It's common knowledge that the SEC views 99% of tokens as securities.

So, whether or not you're on the SEC's radar, the real game-changers will be the SEC losing the XRP lawsuit or Congress introducing new laws. Either could flip the SEC's position and potentially clip its wings in crypto regulation.

While this lawsuit doesn't change that, the XRP case is a rare instance where the SEC has been put on the back foot, as Ripple won't settle unless XRP is given a non-security status.

Three possible scenarios 🧮

Given that we currently don't have enough information to fully assess the seriousness of the claims made by the SEC, the best way to handle it is through probabilistic thinking. So, let's consider three potential scenarios, ranging from worst to best.

Worst case

Imagine a crisis like the FTX panic if the SEC's allegations hold water. Massive client withdrawals could push Binance to bankruptcy. It's a remote possibility, but it'd spell criminal charges for CZ and a major blow to the crypto market.

If the SEC emerges victorious in the Ripple case and targets the 12 mentioned tokens by suing their projects, it spells doom for them. When the SEC sues a project, it gets ugly, and the arguments used in this case could feature in those lawsuits.

BTC bottoms at ~$15,000

Base case

The SEC puts the brakes on Binance's US operations with hefty penalties. Even without misuse of funds, Binance could bid the US goodbye just for breaking the rules. BNB/BUSD might find themselves in an XRP-like fix - a setback for Binance, but the broader crypto market endures.

The SEC handles the lawsuit, so they don't have to prove the 12 tokens are securities, leaving us none the wiser on their status. This leaves the situation neutral for these tokens, keeping us in the regulatory dark.

BTC bottoms ~$20,000

Best case

Binance settles with US regulators, eating a record-breaking fine. CZ might step down, but Binance sails past these legal roadblocks. This scenario could mark a win for crypto and BNB, signaling regulators' readiness to grant second chances.

For the 12 tokens deemed securities, their best hope lies with Ripple winning their lawsuit, enabling them to defend themselves.

BTC bottoms at [$23,000-$25,000]

Cryptonary’s take 🧠

In legal battles like this, seeing the light at the end of the tunnel takes a while. Heavyweights like the SEC often come out swinging with hard-hitting arguments that can leave firms like Binance scrambling for cover. Right now, Binance is up to its neck with the SEC's claims, and the fact that its employees are singing along with the SEC, just like in the CFTC case, could add fuel to the fire.

So, what's next for Binance? Well, there's a strong chance it might have to say goodbye to the U.S. and set its sights on greener pastures, much like what we predicted in our base case scenario.

But hey, let's not get carried away. The worst-case scenario of Binance going the way of FTX and going belly up is still a long shot. But if there's any truth to these allegations, we could see BTC nosediving below $20,000.

Even with a sliver of a 1% chance of this worst-case scenario coming true, it might be wise to pull your funds from Binance until the fog clears and the risk simmers down.

Update: SEC files lawsuit against Coinbase

A day after the Binance lawsuit, the SEC also filed a lawsuit against Coinbase. We have updated everyone about this on our Discord.

The SEC lawsuit against Coinbase focuses on securities regulations, while the one against Binance is more severe, involving fraud allegations. Coinbase has a better position, with no claims of fraud or mishandling of customer funds.

Given the ongoing challenge of regulatory clarity, Coinbase can defend or settle many accusations, which places Coinbase in a better position than Binance US.

TLDR: Action points 📝

1. Join our Discord! You'll get updates on the crypto market and timely alerts about big-ticket events.
2. When it comes to your funds, play it safe. Get a hardware wallet and spread your money across different wallets like Argent, Trezor, Tangem, and Gridplus.
3. Become a Cryptonary Pro member and dive into the world of DeFi. With all the uncertainty around centralised exchanges, DeFi could be your golden ticket.