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Sunday, October 15, 2023

Binance Ban, Warnings Against Crypto Investments

The world’s largest cryptocurrency exchange in terms of trading volume, Binance, faced tremendous outrage after many countries banned the company from conducting any regulated activity. The news got especially big within the U.K.

The country’s financial watchdog, the Financial Conduct Authority (FCA) ↗, announced in June 2021 that Binance is not allowed to conduct any regulated activity without the prior consent of the FCA. The authority did not state any specific reason for the ban.

The FCA also warned customers against investing in cryptoassets in general. The warning stated that most of the firms advertising and selling investment options in crypto-related products are not regulated by the FCA. This means that if a customer falls into trouble for investing in cryptoassets, they would not be eligible for the Financial Services Compensation Scheme or the Financial Ombudsman Service.

The authority also said although they do not regulate cryptoassets like Bitcoin trading or related products, they do regulate some cryptoasset derivatives and cryptoassets considered as securities. Only firms authorized by the FCA can advertise or sell such products in the U.K.

What’s happening in other countries?

Apart from the U.K., other countries like Japan, China, and Germany are also imposing bans on cryptocurrency trading or at least issuing warnings for customers to be wary of such investments. China and the U.S. have been two of the first countries to impose similar bans and made a significant impact on the market.

Japan’s financial regulators said that Binance’s operations in the country were illegal and not authorized by the government. Germany also stated that they are considering fining the firm for offering tokens connected to stocks without prior approval.

China, the growing economic superpower, also imposed bans restricting several financial institutions and payment companies from providing cryptocurreny-related services. Spokespersons from China had a reason to justify the ban, though.

They said that they were concerned about the excessively fluctuating prices of cryptocurrency. The speculative trading of cryptocurrency, such as Bitcoin trading, and the risk it poses to people’s financial safety and the country’s economic order is the reason behind this decision.

With so many nations issuing warnings against Bitcoin trading and banning major crypto exchanges like Binance, what impact could it have on Bitcoin prices or crypto regulations in general?

The impact of the crackdown

The crypto industry is largely unregulated. Except for a few firms that have been trying to build connections with regulatory bodies, others like Binance are working outside the realms of established regulations. Regulators have noticed these activities. Though most nations and their financial regulators are increasingly trying to introduce innovations in financial services, cryptocurrency trading is still seen as a risk.

The major risks include the lack of consumer protection and the illicit activities or money laundering that crypto can enable. Binance came under the scrutiny of the FCA primarily because it failed to meet the anti-money laundering requirements that an exchange is required to comply with.

With these new bans, Binance can still operate outside these countries, and customers can access Binance on its website. What changes is that Binance cannot advertise or promote itself in the U.K as a regulated cryptocurrency exchange. To offer regulated services in the U.K., the firm would have to seek the permission of the FCA.

This also means that Binance’s plans of offering crypto trading services using European currency, pounds and euros, on an FCA-regulated platform will have to be reconsidered.

Following these new rules, tech giant Google has also decided to only allow FCA-verified financial services to advertise ↗ on their platform in the U.K. This comes as an effort to mitigate the risks of financial fraud on their platform, according to Google.

How does it affect Bitcoin trading?

With pushbacks from so many nations, it is expected that popular cryptocurrencies like Bitcoin and Ether are to suffer. Bitcoin and Ether suffered the biggest one-day drop since March 2021, and the entire cryptocurrency sector lost nearly $1 trillion after China’s ban on all financial institutions providing crypto services.

Bitcoin prices fell by almost 30% ↗ to $30,066, while Ethereum dropped as low as $1,850.

Although the ban imposed by China made a huge ripple in the crypto market, the FCA ban on Binance did not make much of an impact on Bitcoin prices.

The FCA ban still leaves the decision up to investors on whether they want to deal in crypto assets, having been warned of the risks that the regulators apprehend. In China, however, the crackdown makes it more difficult for individuals to buy cryptocurrencies using regular payment channels. Cryptocurrency cannot be exchanged for yuan either, making it tougher for the miners.

The impact on Bitcoin prices was short-lived, though. Bitcoin soon gained back 6.8% and rose to $34, 854.

Advocates and proponents of cryptocurrency believe that these abrupt, tough regulatory actions taken by nations indicate that the market is actually maturing. They also believe that these moves might encourage firms to create more robust security nets, which could attract future attention.

Summing up

Cryptocurrency is still a relatively new concept to most people and institutions. It takes time for society as a whole to adapt to these changes, more particularly when it has to do with money. These crackdowns may have a momentary impact on Bitcoin trading and prices ↗, but as people are getting more familiar with the concept of crypto, it will be interesting to see how it’s embraced in the future.

Both governments and cryptocurrency firms need to bring transparency to the regulations. Governments have to define the regulations well so firms know what they can or cannot do. But these regulations cannot be the same as the ones controlling the regular currency. They have to be aligned with what cryptocurrency and blockchain technology stand for. The concept of completely decentralized exchanges with users having total control over their coins is what the crypto industry aims to achieve.

James Mackreides
James Mackreides
'Mac' is a short tempered former helicopter pilot , now a writer based in Sofia, Bulgaria. Loves dogs, the outdoors and staying far away from the ocean.

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