In the face of the prevailing hazy crypto climate, Binance is fast becoming a controlling force in the crypto world. Will Binance make or mar crypto?
Binance controls 50% of the crypto market
Following its role in the recent FTX crisis leading to the volatility issues crumbling the crypto markets at the moment, Binance, the global largest crypto infrastructure, is allegedly becoming a force in the crypto space. As revealed by a publication by The Guardian, yesterday, November 23, 2022, Binance activities have influenced market volatility as the firm controls about 50% of the entire crypto market.
Although Binance has been a leading platform in the crypto space since its inception, the firm is currently attracting the attention of market analysts due to the far-reaching impact of its activities on the crypto space in recent times. Following the bankruptcy of one of the world’s largest cryptocurrency exchanges, FTX, the bitcoin (BTC) price has tumbled again. It is now about $16,500 – a far cry from the all-time high of $66,000 just a year ago.
According to the Guardian’s report, the drop in BTC price is due to the highly toxic combination of Binance, a stablecoin tether, and skilled professional traders running high-frequency algorithms. Also, because Binance controls more than half of the entire crypto market, it sets the price of bitcoin and other cryptocurrencies. Bitcoin-tether, the currency by which traders buy crypto, has the largest volume of all products on Binance. Hence when bitcoin crashes, so does the entire crypto ecosystem.
Binance’s self-regulation, a cause for concern
Considering Binance’s impact on crypto, concerns have been raised regarding the lack of external regulation of Binance’s activities. According to Carrol Alexander, “the issue is that Binance is only self-regulated, meaning it is completely unregulated by traditional market regulators such as the Securities Exchange Commission in the US or the Financial Conduct Authority in the UK.”
While Binance’s lax regulation is a great attraction for professional traders as they can deploy high-frequency price-manipulation algorithms on Binance, which are against the law in regulated markets, these algorithms can cause rapid price movements up and down, making bitcoin extremely volatile.
Another concern for crypto users is that, like other self-regulated crypto exchanges, Binance does its clearing and settlements of trades, meaning that losing counterparties – those on the other side of profitable trades – often have their positions wiped out automatically without notice.
Also, unlike normal exchanges, self-regulated crypto exchanges aren’t required to raise the alarm when a trade has lost so much money that the collateral in the account needs topping up. Instead, traders are solely responsible for funding their accounts by continually monitoring something called the liquidation price.