Binance, CZ paid for defying financial, political status quo: Arthur Hayes

The explosive growth and success of Binance outside of the control of traditional financial and political establishments led to heavy-handed enforcement actions against the exchange, according to former BitMEX CEO Arthur Hayes. 

Hayes delved into the recent $4.3 billion settlement paid out by Binance in a lengthy Substack blog. This comes after the exchange and its founder, Changpeng “CZ” Zhao, admitted to violating United States laws around money laundering and terror financing.

As Hayes highlights, CZ’s global exchange became the largest by trading volume in the six years since its inception in 2017. The former BitMEX CEO points out that Binance would also be rated in the top 10 traditional exchanges by average daily volume, which is indicative of its growing influence on a global scale.

“The problem for the financial and political establishment was that the intermediaries facilitating flows into and out of the industrial revolution named blockchain were not run by members of their class,” Hayes opined.

Binance challenged the status quo

The former BitMEX CEO, who himself fell foul of violating United States Bank Secrecy Act (BSA) regulations after the exchange failed to implement adequate KYC procedures, highlighted Binance’s role in allowing everyday people to own intermediaries and cryptocurrency assets without needing traditional players.

“Never before had people been able to own a piece of an industrial revolution in under ten minutes via desktop and mobile trading apps.”

Hayes adds that from a fundamental standpoint, centralized exchanges used tools of the state, the company and legal structures to “disintermediate the very institutions that were supposed to run the global financial and political system”.

“How dearly did CZ pay? CZ – and by extension, Binance – paid the largest corporate fine in Pax Americana history.”

Hayes then makes reference to a number of high profile mainstream banking scandals as well as the 2008 global financial crisis and subsequent ‘Great Recession’ which was directly attributed to the collapse of the U.S. housing market.

The US and China are kinda sorta friends again. How does this new found love translate into stacking sats? Read “Panda Power” for my take. Bonus feature: a small riff on the #BENANCE situation.https://t.co/ohSBPPhJyz pic.twitter.com/vKBPjMZ0Ce

— Arthur Hayes (@CryptoHayes) November 28, 2023

In the majority of these instances, mainstream banking and financial institutions were largely absolved, or held to limited accountability. On the flip side, CZ and Binance were hammered hard by the U.S. department of justice:

“Obviously, the treatment of CZ and Binance is absurd, and only highlights the arbitrary nature of punishment at the hands of the state.”

Hayes then delves deeply into the intricacies of the current state of the U.S. and Chinese economies and how the latter could drive massive inflows of capital into Bitcoin in the next few years.

Capital making its way from China to Bitcoin

The former BitMEX CEO suggests that Chinese state-owned enterprises, manufacturers and investors are set to begin investing capital offshore due to a lack of attractive returns locally.

Quoting Peking University professor and former Bear Stearns trader Michael Pettis, Hayes writes that China cannot profitably absorb more debt due to the fact that investments do not yield returns that exceed the debt’s rate of interest.

“It gets punted in the financial markets instead. Capital, by which I mean digital fiat credit money, is globally fungible. If China is printing yuan, it will make its way into the global markets and support the prices of all types of risk assets,” Hayes explains.

Hong Kong’s recent approval of a handful of licensed cryptocurrency exchanges and brokers means that Chinese companies and individual investors have a means to purchase Bitcoin.

Given that China was once a powerhouse Bitcoin mining nation, Hayes suggests that many Chinese investors are well acquainted with the asset and its “promise as a store of value” and will

“If there is a way to legally move cash from the Mainland to Hong Kong, Bitcoin will be one of many risk assets that will be purchased.”

From a macro perspective, Hayes outlines an argument for China increasing the availability and affordability of Yuan-based credit locally. This in effect may lead to the price of Dollar-based credit to fall given that Chinese companies have an affordable domestic option.

“Given that the dollar is the world’s largest funding currency, if the price of credit falls, all fixed supply assets like Bitcoin and gold will rise in dollar fiat price terms.”

Hayes adds that the “fungible nature of global fiat credit” will lead to dollars flowing into hard monetary assets like Bitcoin.

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