Dormant risk disappears with billion-dollar settlement Binance

On Tuesday afternoon, the crypto market was startled by an alarming message from the US Department of Justice. The announced press conference appeared to revolve around Binance and its (former) ceo Changpeng Zhao. What was told? You can read that, and more, in this Weekly.

This Weekly in brief

• Market: The bitcoin price is $36,500. For the past 10 days, the price has been hovering between $35,000 and $38,000. Overall, the market is optimistic and the price rise is supported by other data.
• News: Binance founder Changpeng Zhao has pleaded guilty to money laundering. He is stepping down as ceo of Binance and has a jail sentence hanging over his head. The company is buying off all charges with a €4.3bn fine. This removes a risk that had been hanging over the market for months.
• Behind the scenes: At the tenth edition of the WealthBriefing MENA Awards in Dubai, Amdax received the award for 'Best Digital Asset Offering'. A great milestone!

Before we dive into this Weekly, we'd like to share some important news with you: our new podcast(!), A New Course.

Cryptomarket

We have had a volatile week. The price of bitcoin bounced back and forth between $35,000 and $38,000. Several other coins shot up, with solana, avalanche and celestia being high-profile examples.

The chart below shows the bitcoin price since the breakout above $32,000 on 24 October. For the first two weeks, the price quietly rose from around $34,000 to around $35,000. The turbulent stretch played out over the past 10 days.

It is hard to pinpoint a clear cause for the big share price moves. All sorts of things are happening. Macroeconomic data is coming in, there is progress on ETF filings, crypto-exchange Kraken is being sued and Binance CEO CZ is stepping down as part of a settlement with the US judiciary. But the stock price seems to be taking its own course.

Overall, the market mood is still optimistic. For the third consecutive week, capital inflows into crypto funds are at an all-time high of $293 million. Other indicators also continue to support price appreciation, from on-chain behaviour to the derivatives market.

Let's zoom out a bit and look at the chart of the past two years, with the step-down in 2022 on the left and the step-up in 2023 on the right. The horizontal level around $32,000 could safely be called the dividing line between bear and bull markets.

The powerful breakout above this level, now four weeks ago, is therefore of great significance. The price is again neatly above the 200-day average, and we have seen a series of higher tops and higher bottoms since the beginning of this year: a healthy upward trend.

There are no urgent indications that a very deep correction awaits us soon. The market is far from overheating. The price may well continue to rise further into the area between $40,000 and $48,000.

But at some point a correction will test the rising trend. The 200-day average is now at $29,000 and the horizontal level is around $32,000. From here, that would be a correction of 15 to 25 per cent. Even if the price were to go to $40,000 first, that would be an all-round reasonable correction.

News summary

At around four o'clock on Tuesday afternoon, disturbing reports emerged from the US. The Department of Justice was going to announce a "large-scale cryptocurrency action". Last time such an advance announcement appeared, it appeared to be about the closure of the exchange Bitzlato. That it was less shocking than expected then did not make this new announcement any less exciting.

Soon, more information appeared. Via Bloomberg, it was revealed that it was about Binance. This is in line with what has been going on around the exchange in recent months, including civil proceedings filed by the SEC and CFTC. While there were rumours about criminal action, these remained unconfirmed until this week.

Further details emerged via the Wall Street Journal. According to the newspaper, Binance founder Changpeng Zhao has pleaded guilty to violating money laundering rules and is stepping down as ceo. He has also been banned from involvement in governance matters, must pay a multimillion-dollar fine and faces a prison sentence. Binance is buying off all the charges with a billion-dollar fine; at $4.3 billion, one of the highest settlements ever.

Around 9.30 pm, the press conference began. On the scene appeared the entire top brass of the US judiciary. One by one, the speakers confirmed the information that came out earlier in the day.

After making his confession, the judge allowed Zhao to fly back to Dubai, where he is staying pending sentencing. To his staff, Zhao reported somewhat wistfully that it was "a difficult day". "I have to deal with some pain, but I will survive," he said. On 23 February 2024, the court will rule on his fate, which carries a prison sentence of up to 16 months. However, several analysts expect it to culminate in house arrest.

The market reacted resignedly to the news. Of the $65.5 billion in assets on Binance, $64.5 billion remained in the hours after the press conference, partly due to slightly lower prices. There is no question of a mass exodus.

For Binance, a time of looking ahead is now dawning. The new ceo, Richard Teng, wants to restore confidence in Binance, work with regulators and drive the growth of Web3. "The foundation on which Binance stands is stronger today than ever," he says in this regard. That is debatable, but the pavement of the crypto market did become a lot cleaner. A dormant risk that hung over the market, with uncertainties surrounding the world's largest exchange, has largely disappeared with this billion-dollar settlement.

Other news:

• South Korea's national pension fund is investing $20 million in Coinbase shares. The investment, which it made in the third quarter of 2023, resulted in a 40 per cent gain. The National Pension Service, which manages more than $750 billion, follows a policy of not investing directly in crypto currencies. It considers shares of crypto companies as a proxy for exposure to crypto assets. 
• SEC reportedly in talks with ETF applicants again. According to ETF specialist Eric Balchunas, the regulator is providing advice on how a broker can buy and sell shares in the fund. It can do so by sending in bitcoin, or it can send in dollars and leave the purchase of bitcoin to the fund. The SEC prefers the latter - cash creation - to avoid exposure to bitcoin for brokers. This may lead to amended applications in the coming weeks.
• NFTs on bitcoin more popular than on ethereum. Data from CryptoSlam shows that bitcoin was the most popular network in terms of NFT sales volume this week. Underlying this is an explosion in the use of Ordinals. In particular, this involves the creation of Ordinals-based tokens. A fortnight ago, Binance listed such tokens on the exchange for the first time. Due to the increased activity on the bitcoin network, transaction costs increased by more than 900 per cent compared to August.