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The price of Bitcoin turned downwards again in the evening hours and fell below $29,500. We had mentioned that the rise that came with the opening of the US stock markets could be a liquidity hunt. For now, what was expected has happened. The thousands of Bitcoins sent to exchanges were already largely indicative of this. So the recent drop is not surprising. So what will happen if the US Department of Justice files a lawsuit against Binance as expected?
Binance Faces a Lawsuit
Sources leaked in early August that officials from the US Department of Justice were considering fraud charges against Binance, the world’s largest cryptocurrency exchange. However, it was also reported that officials were concerned that this could cause instability in the market, similar to the collapse of FTX in November 2022.
There are already active lawsuits filed by the CFTC and SEC. The problem is that these two regulatory bodies are accusing Binance of many issues. So, there are allegations that go beyond just unauthorized securities issuance and trading, pointing to bigger crimes. For example, the most notable one is turning a blind eye to Hamas revenues in the CFTC case. If the owner of the exchange is Chinese, these allegations bring along various (perhaps exaggerated) claims that the exchange is under Chinese influence.
The Future of Cryptocurrencies
The US Department of Justice may initiate an investigation into crimes that go beyond the jurisdiction of the CFTC and SEC (such as the Hamas incident). It is also being discussed that this investigation could end with a settlement, but we will probably see a sharp decline as soon as the lawsuit is filed. Market expert Tom Blackstone seems a bit optimistic about this.
“Based on my experience, news like this has very little impact on the market for three reasons in the long run. Firstly, charges do not mean anything until there is a conviction, and cases can take a very long time. Secondly, if one exchange fails, another one will emerge in its place. Thirdly, cryptocurrencies are becoming increasingly useful, and as more people learn about them, interest in cryptocurrencies naturally increases. Therefore, I believe it will continue to be a good investment regardless of the news cycle.”
On the other hand, if we remember the Mt. Gox collapse, we know that even the worst-case scenario cannot keep the market occupied for a long time. Although Binance manages 50% of the market volume, Mt. Gox was in control of over 70% of the volume back in those days.
However, several factors will determine how big the collapse will be and how long it will last;
- Will Binance experience a destructive bank run?
- Will CZ and senior executives be arrested as a result of the lawsuit?
- Can the US put the exchange on the sanctions list? (Using reasons like facilitating the business of countries on the sanctions list with cryptocurrencies)
- Will there be a request to suspend operations from the exchange during the lawsuit process?
And many more.
