The curious case of Binance

The curious case of Binance

A lack of laws and regulatory tools make it unlikely the Thai SEC can stop local trade on the world's largest digital asset exchange even if it finds wrongdoing in its probe, writes William Hicks

Despite Thai regulators filing a criminal complaint this month against Binance -- the world's largest digital asset exchange -- for operating without a licence, many users are determined to keep trading on the site and doubt the government's ability to prevent them from doing so.

Binance may be the most popular cryptocurrency exchange in the country, surpassing its competitors such as Bitkub based solely on anecdotal evidence. While the company does not release data on how many users it has in Thailand, the largest Thai Binance Facebook group boasts more than 250,000 members.

One uncertainty for traders is how the Securities and Exchange Commission (SEC) would stop trade on Binance if it moves forward with the criminal complaint.

"All my friends use Binance," said Kittivit Kanokwanvimol, a local cryptocurrency trader based in Bangkok. "Some have accounts on local exchanges, but it's mostly just to transfer crypto into Binance."

The exchange is subject to increasing regulatory pressure around the globe. In the US, Binance faces an anti-money laundering probe, while in the UK some banks have blocked fiat currency withdrawals from the exchange at the behest of the government.

Binance has no official headquarters and domiciles in the Cayman Islands, making it difficult for even the most powerful global regulators to rein in the company.

Binance is a licensed digital asset exchange in the US -- unlike in Thailand -- and has made overtures to some nations' regulators. But despite its popularity among Thais, the local market may not be lucrative enough to bear the cost of regulatory compliance.

In a public response to the numerous regulatory actions against Binance, its chief executive Changpeng Zhao said: "Compliance is a journey -- especially in new sectors like crypto. The industry still faces a lot of uncertainty. We also recognise that with growth comes more complexity and more responsibility."

In Thailand, part of Binance's appeal is the exchange does not comply with the SEC. The Thai regulator ramped up restrictions on digital asset trading, even banning the trade of popular "meme coins" like Dogecoin, non-fungible tokens (NFTs) and cryptocurrencies created by exchanges themselves -- a lucrative way for budding crypto startups to raise funds.

The Thai SEC also has a habit of shutting down exchanges that do not meet regulations, as it temporarily suspended the registration of new users on Bitkub earlier this year after a number of outages on the site caused some day traders to lose money.

The previous market leader for digital asset exchange in Thailand, Bitcoin Co (BX), shut down unexpectedly in 2019 and some users were unable to recover their digital assets. Such events have caused a climate of distrust towards local exchanges by Thai crypto traders who doubt local operators have the liquidity to handle mass selloffs when turbulent markets take a sudden plunge.

"I heard many local sites get shut down and lose millions. One time, users could not sell their assets in time after an exchange shut," Mr Kittivit said. "Binance feels much safer, the analytical tools are better and there are better coins to choose from. I'm not going to stop trading on Binance unless the government makes it very difficult to do so."

NO SOLICITING?

"Binance does not currently have exchange operations in Thailand nor do we actively solicit Thai users," said a Binance spokesperson in an email to the Bangkok Post.

"To avoid any confusion regarding the Thai SEC's recent complaint letter to Binance, we would like to clarify the notice states it is an investigation and not a finding against Binance. While we do not comment on specific matters related to any regulators as a policy, we can say we are looking to cooperate with the Thai SEC as much as possible to address any concerns that it may have."

However, "actively soliciting" is a very subjective term in this context. Binance has made a number of moves to make it easier for Thai crypto traders to transfer baht onto the site and even held a competition last year encouraging Thais and other Southeast Asian traders to "battle it out to secure a prize" in the "Binance SEA Olympics".

The company allows direct baht deposits through Satang Corporation, a local cryptocurrency firm. Before the direct deposits, Binance users in Thailand had to deposit baht with a local exchange, convert it into cryptocurrency and then send it to Binance.

Alternatively, they could use Binance's P2P platform to buy USDT, a cryptocurrency nominally tied to the US dollar, directly from an individual trader as a way of transferring funds onto Binance's platform.

These various transaction methods make the SEC's job difficult if it wants to completely halt the use of Binance in Thailand, as moving cryptocurrency from one digital wallet to another is difficult to prevent through regulation.

However, the SEC could put pressure on Satang Corp because it is based in Thailand and subject to Thai law.

"Many users trade cryptocurrencies besides those listed on Satang, which has always focused on safety, security and providing opportunities to users," said Poramin Insom, co-founder of Satang, in an email to the Bangkok Post. "We offer our users the benefit of multiple network features and were the first to introduce instant baht deposits and withdrawals for the Thai exchange. We also integrated with the No.1 cryptocurrency exchange in the world via a fiat channel.

"It has never been our intention to breach any regulations or negatively affect our users or the authorities in any way."

Binance and Mr Poramin have an ostensibly close relationship since the exchange listed the cryptocurrency Zcoin (now called Firo) that he co-founded, massively boosting its exposure in the global market.

Satang Corp continues to facilitate baht deposits to Binance, despite the pending criminal investigation.

JOURNEY OR DEAD END?

According to Patikorn Trethasayuth, a local crypto enthusiast and community manager at Bitcoin Addict, the most heavy-handed technique the SEC can deploy to prevent trading on Binance is to block the site's URL, similar to what the Thai government did last year with Pornhub.

However, he said traders could simply access the site through a virtual private network (VPN) to get around the block.

"Such a move could prevent trading among people who don't want to use a VPN or don't know how to, but most people will probably find a way to continue trading," said Mr Patikorn.

The government could also pressure banks to block direct withdrawals from Binance, but then traders could fall back to other methods of converting cryptocurrency to baht, like transferring the assets through a local exchange or selling them on a P2P network.

"If a P2P is used, the government does not receive taxes from capital gains. All it will see is a simple bank account transfer between two individuals," he said.

Mr Patikorn used to volunteer as a "Binance Angel", a group of unpaid Binance fans that translate news and marketing material about the company into local languages and help new users with questions and issues.

These angels have allowed Binance to proliferate globally, even in markets where the company does not have employees or could not service customer complaints because of language barriers.

The company is likely to irk regulators because of its loose know-your-customer standards that allow users to withdraw up to 0.06 Bitcoin without providing any identity information. Those who want to transfer higher amounts must send a copy of their national ID card and provide other proof of identity.

By his own estimate, Mr Patikorn said about 90% of Thai traders use Binance, with the other 10% scattered around local exchanges. The most popular local exchange Bitkub reports about 2 million users.

"I am not surprised the SEC took action when it did," he said. "They followed the trend of global regulators going after Binance and thought they needed to do something too."

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