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Binance’s belated search for a home

Pinning down Binance, the world’s biggest cryptocurrency exchange, is a tricky business. It has had no headquarters. This is no accident. Such ties tend to bring regulatory requirements and the risk of watchdogs calling if things go wrong. The UK’s financial regulator concluded Binance’s failure to respond to basic queries was a reason why it was impossible to oversee.

If we are to believe Binance, its peripatetic stance is about to change, as is its truculent attitude to regulation. It is poised to announce its global headquarters. Its chief executive, Changpeng “CZ” Zhao, is in discussions with watchdogs from Singapore to France to Dubai — where he has just become a homeowner. The company also recently published a manifesto stating that regulation was “inevitable”. This is ostensibly a welcome change from six months ago, when Binance met the scrutiny of regulators around the world largely with a shrug. As part of Binance’s attempted rapprochement (which also involves a new head of communications), Zhao claims that Binance is courting big-ticket investment from sovereign wealth funds.

Unpicking bravado from reality in the cryptosphere is hard. Binance is coy about which SWFs are on its dance card, and has provided no detail on how far along any discussions are, nor the nature of investment. Healthy scepticism is required. But on the face of it, as sophisticated investors, SWFs may force a transparency on Binance that has so far remained elusive.

Much will depend on which SWF invests, if any. Equally significant is Binance’s choice of headquarters; the two may be intertwined. Zhao’s logic seems to be that being backed by an SWF will naturally lead a country’s regulator to be more open-minded. That is not preposterous in some jurisdictions. Neither is the idea that an SWF might invest in Binance, which says it records daily transaction volumes of $170bn.

Singapore, where Zhao resides (temporarily, at least) is surely a contender, both for investment and Binance’s home. Singapore wants to be seen as a crypto-friendly jurisdiction. While the Monetary Authority of Singapore is no pushover — it put on an investor alert though it left the company’s local site alone — the regulator is innovative and is exploring a possible central bank digital currency.

Meanwhile, Singapore’s wealth fund GIC and the country’s investment giant Temasek are comfortable investing in crypto exchanges. Temasek was among several blue-chip investors that ploughed $420m into FTX. A Temasek-owned fund already backed Binance’s Singaporean arm, now led by a former MAS official. SWFs are attuned to potential returns from exchanges, whose value is tied to bitcoin’s soaring price. The caveat is the risk that regulation poses to business models. For exchanges in particular, where the real world and cryptosphere intersect, the risk is acute: watchdogs are rightly concerned about the sheer number of armchair investors who may lose their shirts, and about the ability of criminals to launder ill-gotten gains.

Ties to an established market like Singapore may reassure regulators elsewhere. Less welcome would be if Binance bought its way into a lighter-touch jurisdiction, where it could carry the imprimatur of a local licence without overhauling compliance, to continue pushing products around the world. As long as countries’ attitudes to crypto vary wildly, arbitrage will persist. Zhao is right that regulation is coming, and that it can protect users without stifling innovation. But the unpalatable probability is that it will be slow and circumventable, particularly for a company as footloose as Binance.

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