What impact will the Binance prosecution have on Crypto?

As last week's news of the US's successful prosecution of Binance's Changpeng Zhao broke, investors and crypto enthusiasts worldwide have been left pondering about the future of the space, as the removal of a top executive at the world's largest cryptocurrencyexchange is bound to have implications.

CZ (as he is affectionately referred to in the crypto community) agreed to plead guilty to a criminal charge of "failure to protect against money laundering," as well as pay $50m in penalties and is due to be sentenced in February.

But, as governments continue their attempt to clean up the Wild West reputation of digital assets, what does this mean for crypto moving ahead?

A change is coming - for the better!

“[CZ’s departure] might mark the end of the ‘cult of personality’ in crypto,” said Michael Safai, co-founder of trading firm Dexterity Capital. “The space still has its heroes and anti-heroes, but it’s also maturing in a way that good projects are backed by deep teams, and not just one person in the spotlight.”

Also in the news currently is Sam Bankman-Fried, who was convicted of fraud and money laundering charges and is now expected to spend decades in prison. Once the public face of the crypto market, his downfall was yet another major blow to public perception of the digital asset space, although others think that picking out the one bad apple will be good for the rest of the industry.

Paul Brody, the head of blockchain at financial consulting firm EY, calls the outcome of Bankman-Fried’s trial a “wonderful moment for crypto,” and Yat Siu, the chairman of blockchain gaming company Animoca Brands, says it marks a “new beginning” for the industry.

A cleanup of bad actors and a focus on transparency, trust, and legitimacy are both crucial signifiers that the crypto space is indeed maturing, with market sentiment continuing to be bullish as we approach 2024.

However, there is also some concern that TradFi will likely take over the space, as more and more traditional financial institutions like BlackRock, Grayscale, and Fidelity have applied for spot Bitcoin exchange-traded funds. This is a clear signal that fears surrounding a takeover by the very established organizations some crypto natives want to avoid may be imminent, including…

CEXs in the hands of TradFi

While CEXs have been one of the major crypto sectors to gain notoriety, it isn’t expected that they will drop off; rather, they will evolve to being legally accountable - no more Bahamas-based entities and offshore centralized exchanges.

It is suggested that strictly regulated centralized platforms will expand and more will be run by traditional institutions. Singapore’s DBS Digital Exchange would seem to be an example of what Lee is getting at, though for now, the DBS platform, or DDEx, only handles business from institutional investors and high-net-worth individuals.

And perhaps the traditional players or more institutional players coming into the crypto space will extrapolate the best of the traditional practices into the crypto side. For those traders and investors who are not confident using DEXs, this is good and probably welcome news.

What’s Next for Crypto?

2023 has been a hell of a ride for all of us degens, but hopefully, there are also some key takeaways and lessons to be learned from the scandals, crises, and bad press we’ve seen.

An obvious one is that regulation, and the scrutiny that comes with it is unavoidable. “If anything, we increasingly see the importance of cooperating with authorities for the crypto industry's long-term growth and public adoption,” says Yang Lan of Fiat24. “Only through compliance with growing regulatory norms will we create the environment for cryptocurrencies' long-term success.”

Security remains a constant area of focus for the industry, and robust measures must be in place in order to safeguard both individual investors and the broader legitimacy of crypto. We have also witnessed a growing convergence between TradFi and DeFi as banks and financial institutions explore partnerships and collaborations, something that could address both the regulatory and security challenges aforementioned.

Wherever we’re headed, one thing is clear - government-backed regulators are cracking the whip across the existing industry, and only those willing to comply and act legitimately will succeed in the long run.