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  • The CEO of Binance.US resigned this week, instigating fear of a collapse of the crypto exchange.
  • Regulatory challenges could lead to an impact that could range from minimal effect in the crypto market to an FTX-like scenario.
  • Binance Coin price could potentially crash to early 2021 price levels below $50 if the market strength test fails.

Binance, the world's biggest crypto exchange, is making headlines for its issues again. This time, however, the problems for the exchange are increasing quicker than it can solve them. The potential impact of this on the market and Binance's native token could be devastating, per some people.

Read more - Binance.US CEO steps down with exchange shedding 30% of its staff

Binance under the fear of a collapse

Even though Binance.US and Binance are separate entities, any change in the former tends to affect the market as it would had it been the latter. Earlier this week, Brian Shroder, the chief executive officer (CEO) of Binance.US, stepped down from his position. His departure comes after Binance lost a host of top executives this year.

The reason for this goes back to the regulatory challenges faced by the exchange. Binance was subjected to a lawsuit from both the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). Accusations ranging from the sale of unregistered securities to operating an illegal exchange were made against Binance.

These accusations severely impacted the business. For instance, Binance.US lost its user base and trading volume from billions of dollars to less than $500 million at the moment. The exchange also lost its ability to provide purchases using USD, further driving away users. Now, should the regulatory agencies take any enforcement action against Binance.US, it could have a considerable impact on the market.

According to BlockTower Capital founder Ari Paul, this impact could range from a minimal effect to an FTX-like scenario. He supported this argument with Bitmex and FTX, as the exchanges faced regulatory actions in the past. While the former was simply charged, no assets were frozen and the market continued moving with very little impact. 

On the other hand, FTX's collapse led to wealth destruction, resulting in a market and FTT price crash. Paul explained this by saying,

"When billions of dollars of wealth in the crypto industry are destroyed, that affects everything. The losses generated by GBTC flowed through to 3AC, Genesis, and even Gemini customers who thought they were harvesting yield in a savings account. Similar could happen if billions in wealth are frozen/confiscated/stolen as part of a Binance action. IMO, some form of 'orderly' wind down or diminishment would be very bullish crypto over a 4+ month time horizon, since Binance FUD is the elephant in the room, we all know the status quo won't persist much longer and that question is an overhang. (sic)

Binance Coin price could face a downfall

Binance Coin, the native token of the Binance exchange, is highly vulnerable to a crash should the market end up testing its strength. If the market structure weakens and Binance fails a strength test, it could see a huge downfall until the next support level that is below the $50 mark. 

Per Twitter user Entropy Hedge, supported by analyst Material Scientist in regard to a failed BNB strength test, 

"Same playbook as with FTT and FTX. Market tested their strength, saw weakness and that was the beginning of the end.

This was backed by Material Scientist who quoted that "Nothing changes sentiment quite like price does". This suggests that a cryptocurrency is susceptible to a crash in the case of a price drop over any other technical reasons. The explanation behind this is most likely the strength of FUD in the crypto space, which tends to bring losses much quicker than fundamental issues. 

Panic selling and selling due to whale dumping are very common scenarios in the space, which stand as a huge threat to Binance Coin at this moment, considering its other challenges.

While the scenario is theoretical, the volatility of the market cannot be ruled out. If Binance fails to sustain the confidence of its users, especially in the United States, the transition of this theory into a probable reality might not be far-fetched.

Read more - Binance.US set to make a comeback to Dollar via third-party application MoonPay


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