The US Crypto-winter Fallout
In a widely expected move, the US Securities and Exchange Commission (SEC) sued the world’s two biggest crypto exchanges in federal court this week. The main SEC assertion is that most cryptocurrencies are securities, and accordingly, US law requires these exchanges to register with the SEC. Fairly or unfairly, the SEC is making life harder for crypto exchanges to operate in the US. But does the market need the US? And which exchanges have the most to lose from a US retrenchment?
Triple A, a crypto-payments gateway estimates that there are 420 million crypto-owners globally1. That’s consistent with there being 81 million Bitcoin wallets, given that some of these wallets belong to custodians and exchanges which represent many people. It also implies that 5% of the world’s population owns crypto. Again, these findings align with our own fieldwork. Using an anonymised research method called Unmatched Count Technique, we found that 7% of UK consumers own cryptoassets.
The Triple A research also estimates that 44 million of those 420 million global crypto owners are US citizens. That’s 13% of the US population and one of the world’s highest adoption rates. You might argue that since 44 million is only 10% of the total, a US crypto winter isn’t a big deal. But when you adjust for US citizens being richer, they actually account for around 44% of global crypto holdings2. That’s nearly half the market, and the key question becomes, how much of that activity will now cease? And how quickly?
Of course, such a market dislocation would differentially impact crypto exchanges. Unsurprisingly, as the chart shows, we estimate that 98% of Binance US’s revenues come from the US. Likewise, Coinbase and Kraken have 84% and 45% of their business in the US, respectively. Conversely, Binance itself seems to have been relatively successful at channelling its US trading into the US subsidiary. Only about 6% of its own business is US based.
Hence the combination of Binance and Binance US generates 14% of its revenues from US activity. Interestingly, the SEC filing alleges that over the past six years, Binance has earned $11.6Bn in transaction fees from US customers. Given that 14% estimate, the implication is that over the same period, Binance generated $81Bn of fees globally. That’s equivalent to $1Bn per month, which is the amount Binance itself reports3.
So the impact of a US crypto-winter on Binance can be framed as how the business will be affected by losing 14% of its revenues over some time horizon, whether it can absorb the associated SEC penalties, which will likely run into billions of dollars, and what effect the SEC’s accusations will have on non-US counterparties’ willingness to trade with Binance. It would seem like Binance has the resources to withstand the first two. It might be the third question that matters to their solvency.
1. Triple A. Cryptocurrency Ownership Data. Retrieved on August 8, 2023 from https://triple-a.io/crypto-ownership-data/
2. For example, this estimate is similar to Statista’s estimate that 39% of Bitcoin trading volumes in 2020 were in the US
3. Binance. (2023, January 11). Annual Revenue Statement. https://www.binance.com/en/feed/post/157884
