World’s biggest cryptocurrency exchange lacks US footing
The quest for legitimacy in the United States is leading Binance.com, the world’s largest cryptocurrency exchange, to pursue an initial public offering of its U.S. unit. But for a company founded on secrecy — as cryptocurrency firms typically are — the going could be slow and fitful.
This month, Brian Brooks, chief executive of Binance.US, left the company after just three months, citing “strategic differences.”
Changpeng Zhao, the Chinese Canadian billionaire who owns Binance. com, had hired Brooks, a former regulator, to help the company gain a U.S. footing. Brooks left after a venture capital investment he was trying to put together for Binance.US fell through.
The deal would have been the first step to a potential IPO, but some investors balked at the amount of control that Zhao would retain over Binance.US.
Companies that deal in digital money are trying to grow up.
Often started by lone programmers lugging laptops across the globe, many cryptocurrency firms are restructuring themselves into more traditional entities that have boards of directors and audited financial reports.
Some are gunning for a bigger presence in the United States, a lucrative market where hordes of customers are flocking to their platforms — just as regulators have started paying close attention.
In a recent speech, Gary Gensler, chair of the Securities and Exchange Commission, referred to the space as “the Wild West.”
“This asset class is rife with fraud, scams and abuse in certain applications,” he said. “There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced and complete information.”
The initial public offering this spring of Coinbase, a San Francisco-based cryptocurrency exchange that lets customers trade digital currencies for real ones and vice versa, has provided rivals with a blueprint — and a glimpse of the money to be made. This month, Coinbase reported a profit of $1.6 billion in its second quarter as a public company.
“Fundraising and engaging potential investors is an essential part of Binance. US’s long-term strategy,” Hazel Watts, a Binance spokesperson, said in an email.
Watts said the company planned to dilute its ownership significantly by bringing in more outside shareholders.
“The original plan was only to dilute a small portion,” she said.
Zhao, who goes by “CZ” and lives in Singapore, created Binance.US in 2019 as a first step to appease U.S. regulators unwilling to let American customers trade on Binance.com.
He currently owns most of both Binance.com and Binance.US. Brooks came on board in April with the mission of creating a legitimate and transparent business, starting by diversifying its ownership structure through venture capital investment in Binance.US.
Brooks took pains to establish that Binance.com and Binance.US were separate entities despite their common ownership.
Binance.US had “a truly arm’s-length relationship” from the other, he said in a May 19 interview with Bloomberg — licensing the Binance brand and some technology but operating independently. He was looking to raise at least $100 million from investors, according to Ray Lane, a longtime technology executive turned venture capitalist in San Francisco.
Lane’s firm GreatPoint Ventures entered discussions with Brooks about a partial investment in Binance.US. The investors initially drew comfort from assurances by Brooks that Binance.US would be run independently from Binance.com and follow all U.S. regulations.
But with U.S. authorities investigating Binance over money laundering and tax issues, according to a Bloomberg report, and Zhao’s ownership of Binance.US hovering around 90%, GreatPoint decided against making an investment.
“We’d have to make an investment decision before all of those issues were resolved,” Lane said.
Lane said he and his partners thought that the walls separating Binance.US from its parent company were flimsy. “How would we ever feel comfortable that it was an independent company using the same technology?”
Cryptocurrency firms, which have already had run-ins with U.S. regulators, have begun to mount a counteroffensive by hiring lobbyists and luring former regulators, including former SEC chair Jay Clayton, into their fold.