The capital market regulator states the cryptocurrency exchange’s operations here are deemed illegal

by AFIQ AZIZ / Pic by BLOOMBERG

CRYPTOCURRENCY investors are holding onto their investment in Binance Exchange as the company has yet to inform its customers on the latest after the Malaysian Securities Commission (SC) warned it to stop its digital asset exchange (DAX) illegal operation in the country.

Investors said to The Malaysian Reserve (TMR) under the condition of anonymity that they have opted to not withdraw any of their investment in the Binance platform despite SC’s direction to the unlicensed exchange to cease trading and withdraw investment immediately.

An investor who wanted to be identified as Ahmad, believes his crypto assets in Binance are safe as long as there have been no follow-on instructions from DAX.

“I chose not to do anything because there is no feedback from Binance. There is no indication of what will happen to my investment. So far, I can still trade as usual,” said Ahmad.

On July 30, SC issued a public reprimand against Binance for continuing to operate illegally in Malaysia despite being included in the regulator’s Investor Alert List in July last year.

The capital market regulator stated the cryptocurrency exchange’s operations here are deemed illegal as Sections 7(1) and 34(1) of the Capital Markets and Services Act 2007 state all DAX operators must be registered as recognised market operators by the SC.

The reprimand was issued against Binance Holdings Ltd CEO Zhao Changpeng and three other Binance entities — Binance Digital Ltd, Binance UAB and Binance Asia Services Pte Ltd — which are registered in the UK, Lithuania and Singapore, respectively. Binance Holdings is registered in the Cayman Islands.

All four of the cryptocurrency exchange entities have been ordered by the SC to disable the Binance website — www.binance. com — and mobile applications in Malaysia within 14 business days from July 26 and immediately cease all media and marketing activities, including circulating, publishing or sending any advertisements or other marketing materials to Malaysian investors.

The 14 days business days period shall end by tomorrow.

Following the directive, investors have tried to reach Binance for feedback, including if they can use virtual private network (VPN) should the authority block market access.

Binance helpdesk noted users must use the actual Internet Protocol and Binance will ban users who use VPN to access the platform.

“You should remain calm and use our platform until the official news,” read Binance reply.

Notably, following the SC’s direction, Binance published several vacancies in Malaysia with positions of director, analysts and customer experience, indicating the company may be finding a way to legalise its operation in Malaysia.

An IT engineer who has also invested in digital assets on several DAX platforms said it is convenient to diversify his money into non-regulated platforms as it offers more altcoins, cryptocurrencies other than bitcoin, which are not featured on the regulated DAX.

Their transaction fees are also cheaper than the regulated DAX, he said.

“I do calculate the risk. I maintain the guideline to invest only up to 30% of investment on the non-regulated DAX while others are on regulated platforms like Luno,” said the engineer who began his cryptocurrency investment in March when bitcoin peaked at over RM240,000 per coin.

“I am also not worried as I believe Binance will notify investors in advance should the company want to cease operation,” he added.

At present, there are four DAX operators recognised by the SC namely Luno Malaysia Sdn Bhd, MX Global Sdn Bhd, Sinegy Technologies (M) Sdn Bhd and Tokenize Technology (M) Sdn Bhd, according to SC’s website.

Founded in 2017 in Hong Kong, Binance Exchange is regarded as one of the largest DAX in the world with a strong focus on alternative coins trading with over 500 cryptocurrencies listings besides bitcoin, etheruem, litecoin, dogecoin and its own token binance coin.

In 2018, it moved its company headquarters to Malta, the EU, in response to China’s stricter regulations on crypto exchange businesses.

Forbes reported in 2020, Binance has reached US$2 trillion (RM8.46 trillion) in total trading volume, and its binance coin is now the third-biggest cryptocurrency with a market capitalisation of US$62 million behind ethereum (US$370.5 million) and bitcoin (RM845.7 million).

In Malaysia, industry insiders estimated the non-regulated DAXs hold about half of the total traction in the market.

“It is hard to pinpoint as only such DAX like Binance has the number. But I believe the Binance market is huge — almost equal with the regulated market,” said a renowned cryptocurrency leader who wants to remain anonymous due to the sensitive information.

According to reports, the largest regulated DAX in Malaysia, Luno, has over 90% of the legal market share, storing more than RM1 billion of digital assets on behalf of more than 300,000 customers.

Luno processed more than RM4.2 billion of transactions in 2021.

“So, if we take this figure for instance, we cannot discount the possibility that the non-regulated market — which is dominated mainly by Binance — has nearly RM1 billion assets with another 300,000 customers.

“This may justify why SC reprimanded them,” the insider said.

Besides Malaysia, the central bank of Lithuania, the SC of Hong Kong, Italy, Thailand, Canada’s Ontario province and Brazil as well as the Japanese Financial Services Agency, UK Financial Conduct Authority and the US Justice Department and Internal Revenue Services have also taken action against Binance’s operations in their respective countries.