Binance is the world’s largest crypto exchange. It operates in Canada but not in Ontario. However, the question of whether Binance, the world’s largest cryptocurrency exchange, is legalanywhereremains a matter of confusion. Regulators cracked down on the exchange in the summer of 2021 and the exchange has hopped around the world for years in what has become known as a game of “regulatory arbitrage.” Here’s what you need to know.
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What is Binance?
Binance is a cryptocurrency exchange. You can use it to trade cryptocurrencies like Bitcoin, Ethereum, and Dogecoin. It’s the world’s largest cryptocurrency exchange by a long shot.
As of this writing, in late July, 2021, Binance processed $28 billion worth of cryptocurrency trades in the past 24 hours. The next busiest (reputable) exchange, Huobi, processed $5.7 billion. And that’s just spot trades; for more complex derivatives trades, like futures and options, Binance processed $98 billion worth of trades in the past day. The second most popular derivatives exchange, OKEx, facilitated $22 billion worth of trades in the past 24 hours. (Note that derivatives figures are inflated as lots of people trade on margin).
Binance also offers a host of other services. Among its many business lines, Binance operates an NFT (crypto art) marketplace, its own token, BNB (formerly Binance Coin), a popular blockchain called Binance Smart Chain, staking services, a peer-to-peer trading desk and, for a short while, tokenized stocks.
It offers some of the cheapest fees in the industry. For both maker and taker trades on its spot exchange (where customers buy and sell Bitcoin with other users), fees are just 0.1% for people who trade under 50 BTC a month—far lower than other exchanges in its league. These fees decrease for people with lots of BNB tokens, who trade a lot or who have referred their friends.
Binance was founded in China in July, 2017, just a couple of months before the 2017 Bitcoin bull run, where Bitcoin surged to $19,500—and didn’t reach those levels until late 2020. Its founder is Changpeng Zhao, more commonly known as “CZ.” He was born in China, then fled with his family to Canada as a child. After graduating from McGill University, he went into finance, then into crypto and then founded Binance.
Just a couple of months after Binance launched, China stopped cryptocurrency exchanges from operating in the country. Like other top Chinese exchanges, such as Huobi and OKEx, Binance had to find a new home. Thus began the exchange’s worldwide tour. It headed to Japan in 2017, then Malta in 2018. In 2019, Malta said Binance couldn’t operate there, and then it operated from…who knows?
When it launched in 2017, the exchange registered in the Cayman Islands and the Seychelles, and now the exchange claims to not have offices at all—an army of contractors and remote workers. CZ lives in Singapore, as do many of his employees. “When people ask me, I don’t want to give them a wrong answer just to satisfy their definition. I don’t want to tell them, ‘Look, it’s San Francisco, it’s Tokyo, it’s Beijing, it’s wherever,’” CZ toldDecryptin May.
Is Binance legal in Canada?
It depends on where you are. In June, 2021, Binance pulled out of Ontario. Ittold customerson June 25 that the province became a “restricted jurisdiction” and that it “can no longer continue to service Ontario-based users. It advised customers to “take immediate measures to close out all active positions by December 31, 2021.”
Its withdrawal followed a series of allegations from the Ontario Securities Commission against other cryptocurrency exchanges, including Bybit, Poloniex, and KuCoin. The allegations were all pretty similar: that the exchanges offer securities (investment contracts) and derivatives (investment products that represent some underlying asset, like a futures contract) without having registered with the OSC. “Registration and disclosure are cornerstones of Ontario securities law,” said the OSC.
The statements of allegations follow a March notice from the OSC that told crypto exchanges that they “must bring their operations into compliance with Ontario securities law or face potential regulatory action,” and provided a deadline of April 19 to start compliance discussions.
“If a platform currently trading in derivatives or securities in Ontario does not do so by this date, steps will be taken to enforce applicable requirements under securities law,” said the OSC in a statement on March 29.
Grant Vingoe, the OSC’s chair and CEO, said that unregistered crypto exchanges “expose Ontario investors to significant risks,” and that these risks are “magnified” by the “recent explosion of unregistered platforms.”
Vingoe’s claim is not entirely out of the blue. Customers of Canadian exchanges QuadrigaCX and Einstein Exchanges lost their money after the exchanges suddenly shut down. In both cases, law enforcement alleged that the operators of the exchange embezzled customer money. As the crypto market started to heat up in 2021, the concern is that Canadian investors were increasingly exposed to the “potential loss, theft and misuse of their assets,” said Vingoe.
The OSC didn’t issue a statement of allegations about Binance specifically, but the exchange also offers futures contracts and derivatives and arguably securities (however Binance would certainly contest this, as whether cryptocurrencies constitute securities is a hot potato in the industry). It’s unclear why Binance didn’t get a notice; a spokesperson declined to comment toCoindeskon the exchange’s regulatory discussions.
Can Ontarians still trade on Binance with VPNs? Probably, so long as they haven’t listed their address in the province. But that comes with risks: some Ontario-based Binance customersreportedthat their funds were frozen after they tried to execute orders on the exchange. Binance also banned Ontarians in their terms-of-service.
This is bad news for the 38% of Canadians that live in Ontario. The remaining 62% of Canadains can still use Binance as usual. They can trade on spot markets (buy, sell and hold cryptocurrencies), plus derivatives markets.
Ontarians must seek alternatives to trade crypto. However, alternatives have also restricted some services to Ontarians. On Kraken, one major exchange, Canadians can’t trade Ethereum tokens that have been staked in Ethereum 2.0., the upcoming upgrade to Ethereum. Nor can Canadians trade about twenty other tokens, including SUSHI and FLOW.
Binance’s ongoing spat with regulators
After the Ontario incident, several regulators from around the world pounced on Binance, which may make things trickier for Canadians in the future.
Near the end of June, 2021, Japan’s Financial Services Agency warned residents that Binance was operating with registering with the agency.
A couple of days later, the Financial Conduct Authority in the U.K. said that a subsidiary of Binance, Binance Markets Limited, couldn’t operate in the country. Though this didn’t prohibit Binance Global, the wider, global version of Binance from servicing British customers, Binance has paused withdrawals for U.K. customers.
Shortly after, several other regulators from countries including the Cayman Islands, Thailand, Singapore, Hong Kong, and Italy issued similar notices. Several related to Binance’s nascent stock trading service, which let customers buy and sell tokenized (cryptocurrency versions) of stocks in companies like Apple, Tesla and Coinbase. Within hours of Hong Kong’s financial regulator warning that these tokens constitute securities—since the tokens, of course, represent securities—Binance suddenly ceased trading of tokenized stocks.
The company’s charismatic CEO, CZ, responded to the allegations by saying that “compliance is a journey” and that it was in discussions with regulators. The next month, CZ tweeted that he was looking for someone to replace him as CZ. At a press conference in late July, he said,
“There is always a pool of candidates who could succeed me. We are looking for someone with a strong regulatory background to step in and be CEO.”
What’s next for Binance in Canada?
It is unclear whether Binance will reopen for Ontarians. It could be the case that Binance will launch an Ontario subsidiary, just like it has done in other jurisdictions that have prevented it from operating or offering certain services.
In the U.K, before the FCA banned Binance from operating in the country, there was Binance Jersey. This was supposed to be superseded by another U.K. subsidiary in the summer of 2021 but the FCA ban has prevented this; the FCA’s ban, it should be noted, was a response to Binance’s withdrawal of an application to register with the FCA, likely because it couldn’t meet the FCA’s demands around money laundering.
In the U.S, Binance has launched a subsidiary calledBinance.US. This is a much more limited offering than Binance’s main exchange (otherwise known as Binance Global). While Binance traded $16.8 billion in the past 24 hours as of this writing,Binance.UStraded just $476million.Italso offers far fewer coins: 59 to Binance Global’s 376.
Binance.USis headed by Brian Brooks, the former Chief Legal Officer of rival Coinbase and former acting head of the Office of the Comptroller of the Currency. Both Brooks and CZ maintain thatBinance.USis an entirely separate company that operates completely independently from Binance, but the look and feel of the site is nearly identical.
As for Ontarians, it’s unclear. The Canadian Security Association and the OSC have launchpads and sandboxes for fintech companies, but the regulators’ push toward registration may stymie Binance’s moves in the country.
October 22, 2021