Former BitMEX CEO Arthur Hayes said Binance’s explosive growth and success outside the control of traditional financial and political institutions led to severe enforcement action against the exchange.
Hayes dives into Binance’s recent $4.3 billion settlement in a lengthy Substack post blog. Previously, the exchange and its founder Changpeng Zhao admitted to violating U.S. laws on money laundering and terrorist financing.
As Hayes highlighted, in the six years since its founding in 2017, CZ became the world’s largest exchange by trading volume. The former BitMEX CEO pointed out that Binance will also be among the top 10 traditional exchanges based on average daily trading volume, indicating its growing influence on a global scale.
Hayes believes: “The problem facing financial and political institutions is that the intermediaries called blockchains that facilitated the inflows and outflows of the Industrial Revolution are not governed by members of their class.”
Binance challenges the status quo
Former BitMEX CEO himself violated U.S. Bank Secrecy Act (BSA) regulations after leaving the exchange failed to implement Adequate KYC procedures highlight the role Binance plays in allowing ordinary people to own intermediaries and crypto assets without traditional participants.
“Never before have people been able to own a part of the industrial revolution through desktop and mobile trading apps in ten minutes.”
Hayes added that at their core, centralized exchanges use the tools of states, companies and legal structures to “disintermediate the institutions that are supposed to run the global financial and political system.”
“How much did CZ pay? CZ — and Binance — paid the largest corporate fine in the history of American peace.”
Hayes then mentioned a number of high-profile mainstream banking scandals as well as 2008 global financial crisis and the subsequent “Great Recession” were directly attributed to the collapse of the U.S. housing market.
The United States and China are somewhat like friends again. How does this newfound love translate into stacked satellites? Read Panda Power to find out what I think.Bonus Features: About #BENANCE Condition. pic.twitter.com/vKBPjMZ0Ce
— Arthur Hayes (@CryptoHayes) November 28, 2023
In most cases, mainstream banks and financial institutions have been largely exempted from liability, or have limited liability. On the other hand, CZ and Binance have been severely punished by the US Department of Justice:
“Obviously, the treatment of CZ and Binance is ridiculous and only highlights the arbitrary nature of state punishment.”
Hayes then delves into the complexities of the current state of the U.S. and Chinese economies and how the latter could drive massive capital inflows into Bitcoin in the coming years.
Capital shifts from China to Bitcoin
The former BitMEX CEO said Chinese state-owned enterprises, manufacturers and investors will start investing overseas due to the lack of attractive returns locally.
Hayes cited Michael Pettis, a professor at Peking University and a former Bear Stearns trader, who said China could not profit from absorbing more debt because the return on investment would not exceed the interest rate on the debt.
“It is instead being bet on financial markets. Capital, and by that I mean digital fiat credit money, is fungible on a global scale. If China prints RMB, it will enter global markets and support the prices of all types of risky assets .” Hayes explained.
Hong Kong recently approved several licensed cryptocurrency exchanges and brokers, meaning Chinese companies and individual investors have ways to buy Bitcoin.
Given that China was once a major Bitcoin mining power, Hayes said that many Chinese investors are very familiar with the asset and its “promise as a store of value” and are willing to
“If there were a way to legally move cash from the mainland to Hong Kong, Bitcoin would be one of the many risk assets that would be bought.”
From a macro perspective, Hayes outlined China’s argument for increasing the availability and affordability of local RMB credit. Given that Chinese companies have affordable domestic options, this could actually cause dollar-based credit prices to fall.
“Given that the U.S. dollar is the world’s largest funding currency, if credit prices fall, all fixed supply assets such as Bitcoin and gold will rise in U.S. dollar fiat terms.”
Hayes added that “the fungibility of global fiat credit” will lead to dollar inflows into hard currency assets such as Bitcoin.
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