What the Binance settlement means for crypto investors—and why it could clear the path for a bitcoin ETF

Published Wed, Nov 22 20233:03 PM EST

Industry insiders are cheering the end of a "CZ"-led Binance as a necessary move for crypto going forward. CZ – short for Changpeng Zhao, founder and leader of Binance, the largest crypto exchange in the world – pled guilty on Tuesday to several federal criminal charges brought by the Department of Justice and agreed to step down from his role as CEO. Crypto prices initially fell but stabilized by Wednesday, as investors realized the situation was better than they feared. Some say it was perhaps even critical for what could be the next big step for the industry: the approval of a bitcoin ETF. To launch a bitcoin ETF – as BlackRock, Fidelity, Franklin Templeton and several others are trying to do – issuers need to source the bitcoin from somewhere, and while most firms applying for a fund have agreements with Coinbase, price discovery really happens on Binance. " Coinbase is not the biggest liquidity venue in the world, that's Binance," said Michael Rinko, research analyst at Delphi Digital. "If you're actively investigating the company and the CEO who's telling everyone the price of these assets, how are you then going to greenlight an ETF? Having this settlement behind us could be the final big, big step needed for this ETF." The Securities and Exchange Commission was noticeably absent from the actions against Binance and CZ, which were a joint effort by the DOJ, the Commodity Futures Trading Commission and Treasury Department. The crypto industry has long sought the creation of a bitcoin ETF (efforts to launch one go back at least a decade). But the likelihood of it happening grew this summer when BlackRock surprisingly threw its name in the hat, and has continued to build since. Fidelity, Invesco, Franklin Templeton and Ark Invest are just some of the big names waiting in line for approval. General consensus is one will probably be approved sometime in the first half of next year, though some have said it could come sooner . A dark cloud lifted Bitcoin ETF or not, the Binance settlement removes a huge source of uncertainty from the market – especially coming less than a month after FTX founder Sam Bankman-Fried was found guilty of several criminal counts of fraud and conspiracy. "A lot of people have FTX PTSD," Rinko said. "Those memories are still pretty fresh and when people hear 'centralized exchange investigation' they immediately think the worst." Swan Bitcoin lead analyst Sam Callahan echoed that sentiment, calling the settlement a positive development that will help the industry mature and move forward on steadier ground. "The industry has been further cleansed of bad actors," Callahan said. "In addition, the fact that Binance will be allowed to continue to operate removes concerns that this could have significantly impacted market liquidity and caused a more systemic disruption to the broader crypto market." CZ has always been a controversial figure tied to the reputational challenges Binance has long suffered, said Yesha Yadav, a professor of law and associate dean at Vanderbilt University Law School. Because of that risk, his removal could offer a positive change even beyond the company. "Binance is globally the major liquidity pool for crypto trading despite losing market share this year," she said. "Should liquidity reduce or fragment across multiple platforms or if customers leave Binance and crypto, this may impact prices, where there are higher transaction costs arising on account of shallower liquidity."