Will Binance’s crypto dominance persist post-settlement?

Binance, the world’s largest crypto exchange, agreed this past week to fork over $4.3B to settle the U.S. government’s allegations that it violated sanctions and money transmission rules. What’s more, founder Changpeng Zhao, otherwise known as “CZ,” pleaded guilty to alleged breaches of anti-money laundering rules and stepped down from the CEO role.

What does this historic settlement mean for Binance’s position at the top of the crypto market, as well as for the overall industry?

While the trading platform saw over $1B in outflows after the news, the magnitude of which aligned with what happened in June when Binance and CZ were charged with a slew of securities violations by the Securities and Exchange Commission, it remains the dominant crypto exchange globally with $67B of customer funds under custody, Bernstein analyst Gautam Chhugani wrote in a recent note.

“Binance’s reputation with retail non-U.S. customers has remained strong through the crisis,” the Wednesday note said. While Chhugani reckons it will remain a “material entity in non-U.S. markets,” he expects increased competition from rival Coinbase’s (COIN) offshore derivatives exchange and new exchanges in regulated markets like Singapore and Hong Kong.

The analyst believes that Binance has enough liquid funds to settle the $4.3B penalty while maintaining healthy operations. He called the post-settlement outflows “minor,” noting there wasn’t major panic among customers.

The plea deal has upshots but also negative implications for the wider crypto market. On the bright side, the deal and charges “can be viewed as a removal of a long-standing overhang on the industry, one that kept many investors at bay,” Greg Cipolaro, global head of Research at NYDIG, wrote in a Wednesday note.

“The flip side is that because Binance has such a dominant share of trading in spot and futures, liquidity, which has been an increasing concern throughout the year, will likely suffer,” he added. “This probably isn’t a major issue for the major digital assets like bitcoin (BTC-USD) but may present a bigger challenge for small and illiquid altcoins where Binance accounted for the lion’s share of trading.”

Indeed, bitcoin (BTC-USD) is on track to close out this Thanksgiving week some 5% higher, despite another batch of headlines that underscore how regulators continue to clamp down on the crypto space. In addition to the Binance-DOJ deal, the SEC on Monday brought charges against Kraken, accusing the fellow crypto exchange of commingling customer money with its own while operating as an unregistered securities exchange, broker, dealer, and clearing agency.

The Binance deal “marks the same inflection point that we saw earlier at the intersection of the .com and post-.com eras,” said Yiannis Giokas, senior director of Digital Assets at Moody’s Analytics. “With digital currencies becoming more mainstream and institutional players entering the space, regulations and enforcement will become stricter to ensure compliance and consumer protection.”