Binance has come under a barrage of regulatory pressure over the past month in countries across the world. This has not really put a stop to the popularity of the exchange as it still remains the largest exchange by a fair margin.
However, many in the cryptocurrency community have begun to question whether Binance’s native token Binance Coin will take a hit. This will have major consequences on the future of the Binance Smart Chain that has attracted a large amount of DeFi protocols from competitors like Ethereum.
Binance Faces Regulations Around The World
Binance recently announced that Hong Kong residents would be disallowed from trading futures and derivatives on the platform for the next 90 days. This comes after the UK, Italy, and Malaysia have announced a similar ban on Binance’s derivative trading in their countries.
Binance has gone a step further and essentially banned users from most of western Europe from trading derivatives and futures on the platform. The cryptocurrency exchange has also forced all users to undergo Know Your Customer (KYC) regulations, likely at the request of regulators.
That is still not the end of Binance’s response to regulatory pressure. The exchange has also lowered the daily withdrawal limit from 2 BTC to a paltry 0.06 BTC. The lower withdrawal limit makes Binance not even a real cryptocurrency exchange at this point.
It simply is no longer possible to withdraw a meaningful amount of cryptocurrency off the exchange.
Why Are Regulators Targeting Binance?
The regulators have not stated their reasoning for the tightened regulations on the exchange. But many in the cryptocurrency community have their theories on why Binance is facing so much scrutiny at the moment.
The likely reason, in our opinion, is that Binance released the Binance Smart Chain, which requires BNB to use. Regulators likely want to ensure that taxes are recorded and paid on earnings that occur on BSC. Remember, most of the earnings on BSC end up flowing through Binance in order to enter the fiat economy.
Will Regulators Target Binance Smart Chain and BNB?
Yes, at this point it seems likely that regulators will target Binance Smart Chain and BNB. This is not nearly as difficult as it seems, either.
Binance Smart Chain is not decentralized like Ethereum or Bitcoin. The simple truth with it is that it requires BNB to use. BNB is almost exclusively bought and sold on Binance exchanges around the world, so regulators naturally go after the exchange as a way to target the blockchain.
Is Regulation Good For BNB?
No, regulation is terrible for BNB, Binance, and the cryptocurrency industry as a whole. There is simply no way around this problem for Binance.
More regulation means that less people are likely to use the token and, by extension, the exchange and blockchain that rely on BNB.
A large part of Binance’s popularity likely had to do with the lack of regulations on the exchange. The biggest one being that KYC was not even required for a lot of users on the exchange.
Regulators likely twisted Binance’s arm in order to force them to enact KYC on all their exchanges.
Further complicating matters is the low withdrawal limit of 0.06 BTC and removal of the ever popular derivatives and futures.
The regulations are basically handicapping Binance.
The Future of Binance and BNB
Binance and BNB will be even further handicapped by regulators around the world. This likely will not bode well for the future popularity of Binance, BNB, and the Binance Smart Chain.
The biggest problem Binance will face is the abyssal 0.06 BTC withdrawal limit. No one will want to trade on BSC because exiting requires moving through Binance, which now has a low withdrawal limit.
This compares terribly to Ethereum. It is possible to make $100,000 on Ethereum DeFi, move it to a centralized exchange like Coinbase, and withdraw it quickly.
That is no longer possible on Binance. It is still possible on the Binance Smart Chain using bridges to other blockchains, but it’s a difficult process.
To summarize, regulations are always bad for cryptocurrency exchanges. Binance and its native token BNB will likely suffer from these regulations.
The good news is that BNB already has an inflated value.
The Future of BSC
BSC has a brighter outlook because the operations of it occur outside of Binance. However, there will still be a lot of pain for BSC as the exchange that bridges BSC with the fiat finance system faces tighter regulations.
The bigger problem for the future of BSC is the centralization of it compared to Ethereum. This is not a huge problem at the moment because the extremely low fees of BSC cause most people to ignore the fact that BSC is a centralized blockchain.
The problem for BSC will occur when Ethereum 2.0 is released. For those that do not know, Ethereum 2.0 will greatly reduce the fees on Ethereum because it will switch from proof of work to proof of stake at that point.
Anyway, the centralization problem that BSC has will likely become a much bigger issue once gas fees on Ethereum lower. At that point, no one will care about BSC because it will be a centralized version of Ethereum with the same fees.
What Will Regulators Target Next?
Binance appears to have done everything possible to satisfy regulators. KYC, withdrawal limits, and removing futures and derivatives in certain countries should keep regulators happy for the foreseeable future.
The company likely will not move its offices to a more regulated country. But that does not matter because it has satellite offices in the countries in which it operates.
That sums it up for the battle that Binance has faced with regulators and the impact on BNB. Binance has waved the white flag at regulators by enacting a whole range of regulations and even closing down sections of the exchange in certain countries.
The reduction in trading volume will likely not benefit the price of BNB. BNB will then face further price pressure from the rollout of Ethereum 2.0 at the end of the year.
We are confident that Binance will make it through this time because Binanec Founder and CEO Chanpeng Zhao (aka: CZ) is extremely intelligent. But Binance and CZ will face a lot of hurdles in the coming year.