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Binance takes page out of online gambling playbook as regulators bring hammer down

6 min read

The beleaguered Binance cryptocurrency exchange continues to rein in its excesses in a bid to avoid the fate suffered by some U.S.-facing online gambling sites.

On July 26, Binance announced that its customers will soon lose the capacity to engage in margin trades involving the Australian dollar, Euro or British pound. Digital currency pairs based on any of those fiat currencies will no longer be accepted as of August 10, while existing orders and pairs will be automatically settled and delisted by August 12.

The announcement came two weeks after Clear Junction, a major European payments partner, announced that it would no longer permit Euro or pound deposits or withdrawals to Binance. The move was the latest in a long line of financial rails that Binance has lost following warnings by financial watchdogs on multiple continents.

Binance’s product list has also been shrinking under regulatory pressure. Earlier this month, Binance announced an immediate halt to new sales of stock tokens, with existing token holders given 90 days in which to close their positions. That move followed a warning by Hong Kong’s Securities and Future Commission that Binance was an ‘unlicensed platform operator’ against which the regulator would not hesitate to take enforcement action.

Breaking up is hard to do

Stock tokens are also offered by the FTX exchange, in which Binance was an early investor. Not that long ago, FTX called Binance “a trustworthy partner and strong supporter” whose “experience and know-how will help FTX grow faster and larger.” But Binance divested itself of its entire FTX stake last week during the latter firm’s record $900 million funding round.

Binance CEO Changpeng ‘CZ’ Zhao told Forbes that having FTX buy out its stake was “part of a normal investment cycle” but it’s hard not to see FTX founder Sam Bankman-Fried trying to put as much distance as possible between his firm and the toxic regulatory soup that Binance has become.

Bankman-Fried told Decrypt that he’d had a “cordial discussion” with CZ regarding their divorce, but the FTX boss also said that “when you sort of appear less flexible or responsive [to regulatory concerns], I think that’s more likely to lead to cases where regulators might feel like they have no choice but to start bringing the hammer.”

Compared to Zhao, Bankman-Fried may (for the moment) have a modestly larger fig leaf of respectability but, as a recent New York Times profile revealed, FTX has taken equally great pains to keep itself free from the clutches of U.S. regulators while offering products to U.S. citizens without local approval.

Deleveraging the goods

The former union of Binance and FTX saw both companies become magnets for investors looking to parlay small stakes into big bonanzas by offering leverage trades as high as 125x. Despite the publicly stated demise of their partnership, the two companies issued near-simultaneous announcements over the weekend that leverage on these products will now be capped at 20x.

Bankman-Fried disingenuously tweeted that the cap was “partially because we try to encourage responsible trading” while CZ said it was done “in the interest of Consumer Protection” but also because Binance “didn’t want to make this a thingy.”

Concerns over products offering excessive leverage was already a ‘thingy’ with financial regulators, including the U.K.’s Financial Conduct Authority (FCA), which issued a warning in June regarding Binance’s lack of approval to operate in the U.K. that convinced most U.K. banks to shun the controversial exchange.

In 2019, the FCA brought the hammer down on companies offering high-leverage Contracts for Difference after concluding that neophyte retail customers were being taken to the cleaners. Given the FCA’s mounting interest in Binance’s activities—and the resulting action by the FCA’s counterparts in other jurisdictions—it was only a matter of time before the high-leverage products came under the microscope.

Rolling the digital dice

Studies have shown that over 80% of CFD traders lose money—the number is said to be even higher for overall margin trades—so both Binance and FTX were effectively trawling for gamblers when they introduced their high-leverage derivatives. And now that regulators are shining the spotlight, both exchanges are declaring themselves shocked—Shocked!—that the house edge in their casinos is so stacked against their customers.

As someone who has covered the gambling industry since 2006, the quest for math-challenged customers isn’t the only parallel one can find with today’s digital currency exchanges. In fact, the current regulatory climate bears a striking resemblance to the situation that preceded the clampdown by U.S. authorities on internationally licensed gambling sites catering to U.S. customers.

In both cases, a number of high-profile sites based outside the U.S. paid lip service to their declared legal obligation to block U.S. customers while secretly accepting all the Benjamins they could through the use of virtual private networks and elaborate account-funding schemes.

This didn’t end well for gambling site operators, most of whom utilized U.S.-registered dot-com domains that could be seized without warning. The sites’ not-so-under-the-radar dealings with the U.S. banking system also enabled federal authorities to target the sites’ operations in other markets, thanks to Washington’s traditionally expansive view of extraterritorial jurisdiction.

Nowadays, it’s common for digital currency exchanges to omit a number of U.S. states from their areas of operation and deny U.S. customers access to certain digital currency products. Much as U.S.-facing gambling sites would block customers in states with stricter rules and curtail their more legally dubious activities—so, no sports betting, only poker—in reaction to increasingly bellicose statements by local authorities.

Given these parallels, we feel confident in predicting the short- to mid-term future of these digital currency exchanges. Basically, once the U.S. Department of Justice suspects an exchange is preying on vulnerable consumers or engaging in criminality, including—knowingly or otherwise—helping criminals move money around, the DoJ won’t hesitate to act. And when it does, all the compliance theater in the world won’t wash Binance’s hands clean.


Last Friday, Binance’s CZ took yet another page out of the online gambling playbook by declaring that his company was looking to hire a new CEO with a “very strong regulatory background.” In reality, what CZ is looking for is a fresh-faced, weak-willed stand-in to provide the illusion of propriety, much as PartyGaming hired Mitch Garber following its U.S. legal problems.

CZ also revealed that Binance’s U.S. offshoot (and compliance decoy) Binance.US was “looking at the potential IPO route” to snag some of that sweet public market action. CZ qualified that the IPO plan was “not 100% fixed,” which is sort of like saying Vladimir Putin is still on the fence regarding a dark horse bid to be elected U.S. president in 2024.

You have to give CZ props for trying to bluff his way out of a very bad hand. With reports of Binance being investigated by U.S. authorities for alleged money laundering and tax evasion, it’s hard to think of a company less likely to win approval to list in New York. And while the CEO of Binance.US likes to claim that his site merely licenses Binance’s brand and technology, nowadays Binance’s brand is non-compliance, which generally doesn’t sit well with securities regulators. 

In keeping with their online gambling forebears, CZ and other ‘digital nomads’ like Bankman-Fried appear to believe they can continue to kick the compliance can down the road while reaping the benefits of U.S. operations and avoiding regulatory blowback. It’s a bad bet.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups — from BitMEX to BinanceBTC.comBlockstreamShapeShiftCoinbaseRipple and ETH—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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