Crypto markets unfazed by DOJ settlement, Binance not going away: K33 Research

Bitcoin and ether have shown strong reliance over the past week following the U.S. Department of Justice's settlement with crypto exchange Binance on Nov. 21, according to the latest K33 Research report.

The DOJ settled a criminal case with Binance last Tuesday, which had probed into alleged money laundering, fraud and sanctions violations. The crypto exchange will pay a $4.3 billion fine, marking one of the largest corporate settlements in U.S. history.

While comparisons have been made with the collapse of FTX, "Binance has operated illegally in the U.S., which they will no longer be able to do, but the settlement has nothing to do with mishandling customer funds" and "won’t have any contagious effects in the future," Senior Analyst Vetle Lunde and Vice President Anders Helseth said.

The news had little sustained market impact, with bitcoin and ether closing the week with flat returns, though altcoins fell slightly and Binance's BNB token took a significant hit, falling 10%, the analysts noted.

Top three market cap performance. Image: K33 Research.

Bitcoin is currently trading at $37,857 with ether at $2,038, up around 6% and 5%, respectively, since Nov. 21 as the market absorbed the implications of the settlement. BNB currently trades at $228, down nearly 14% since Nov. 21, according to The Block price data.

Conversely, Uniswap's UNI token rose around 20% over the past week, based on the decentralized exchange being the opposite of a centralized exchange like Binance, the analysts added.

Binance 'not going away'

Despite Binance's declining market share this year and over $1 billion outflows recorded in the 24 hours after its $4.3 billion fine, Binance is not going away anytime soon, Lunde and Helseth argued.

Binance's market share among non-USD exchanges slipped below 45% this month from around 70% at the start of the year amid the regulatory pressure, according to The Block's data dashboard.

A similar picture has been painted in the derivatives market during 2023, with Binance declining in market share from 32% to 26% throughout the year, the analysts added.

YTD changes in open interest (BTC futures and perps). Image: K33 Research.

"Nonetheless, Binance's strong user base points towards Binance remaining a cornerstone of the crypto market structure as we advance into 2024," Lunde and Helseth said, with Binance still the largest crypto exchange by trading volume by some margin.

Signs of profit taking amid substantial long exposure on the CME

Institutional traders on the Chicago Mercantile Exchange were maintaining substantial long exposure coming into this week, the K33 analysts said, with bitcoin exposure and premiums for bitcoin and ether nearing all-time highs.

CME's BTC futures have only traded with larger premiums on three occasions: twice during the 2020-2021 bull run and once ahead of the COVID crash, the analysts added. The premium is the difference between the spot price of an asset and the price of its futures.

CME bitcoin open interest and premium. Image: K33 Research.

However, by Monday, premiums had moderated substantially alongside a 6% reduction in open interest, indicating one or a few larger traders were realizing profits, Lunde and Helseth said.

Crypto-native derivative traders in the offshore market show no clear directional tendency, either, with funding rates remaining neutral and open interest stable at relatively low levels, the analysts added.