Crypto Noise Brings More Attention To Binance’s Business

After FTX’s dramatic collapse, regulators have been looking more closely at other players in the industry, which has caused a crisis of confidence.

Binance, a rival cryptocurrency exchange, may have been hit the hardest. Binance was partly to blame for the chain of events that led to FTX’s multibillion-dollar loss in November of last year.

This is because Binance, the largest cryptocurrency exchange in the world, has said in public that its management of customer funds “has not always been perfect.” On January 24, Reuters reported that Bitzlato, which was penalized by the federal authorities, used Binance as a key route.

In its “Imposition of Special Measure Prohibiting the Transmittal of Funds Involving Bitzlato” order, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) said that Binance was one of Bitzlato’s top three counterparties in terms of the amount of digital assets it got from May 2018 to September 2022.

Binance’s Finances Get “F”

According to the FinCEN report, Binance was the only major cryptocurrency exchange on the list of top counterparties. The Russian-language darknet drugs marketplace Hydra Market, a smaller exchange called LocalBitcoins, and Russia-based Finiko were also on the list.

In the special measure order, FinCEN called Finiko “a alleged crypto Ponzi scheme.”

A report from the U.S. Hydra, which was shut down by the DOJ, was the largest and longest-running darknet marketplace. Users could use cryptocurrency to buy illegal drugs and other services without being traced.

In a release announcing Hydra’s closure, Deputy Attorney General Lisa O. Monaco said, “The Department of Justice will not allow darknet markets and cryptocurrency be a safe haven for money laundering and the sale of hacking tools and services.”

Since the U.S. branch of Binance is being probed for moving money without a license, conspiracy, and breaking criminal sanctions, not the most reassuring corporation.

In June of last year, Reuters did a separate investigation that used blockchain data to show that buyers and sellers on Hydra’s darknet marketplace used Binance to send and receive crypto payments totaling more than $780 million.

The mysterious exchange, whose parent company and headquarters are kept secret, is said to have processed at least $10 billion in payments for criminals and companies trying to avoid U.S. sanctions.

Over the course of about 205,000 transactions, $346 million worth of digital assets moved between Binance and Bitzlato. According to a report by Reuters, the numbers were put together by Chainalysis, an important U.S. blockchain researcher that often works with governments on data and analysis about the crypto industry.

Over a quarter of that amount, or $90 million, was moved after Binance said it would require its users to show valid ID in order to trade on its platform. This was done to help stop illegal activities from funding and laundering money.

As on February 1, the U.S. and other financial institutions cannot send money to Bitzlato, according to the FinCEN report.

The way crypto firms handle their customers’ reserves that are held in custody has become a hot topic in the digital asset industry after FTX allegedly stole assets from its own users to fund bad bets. It led to a disastrous multi-billion-dollar bankruptcy and a historic loss of wealth.

Binance’s alleged storage of customer money and token collateral in the same wallet is shocking and concerning.

The state’s primary financial watchdog, the New York State Department of Financial Services (NYDFS), advises crypto businesses to keep their customers’ bitcoin assets separate from their own. Traditional financial leaders, like Stifel CEO and Chairman Ron Kruszewski, are also telling the crypto industry to do this.

“DFS’s virtual currency regulation has protected New Yorkers since 2015,” said NYDFS Superintendent Adrienne Harris.