Binance’s US affiliate has been valued at $4.5bn in its first fundraising round, far less than its main rival as regulatory concerns muddy the outlook for Changpeng Zhao’s sprawling network of crypto companies.
On Wednesday, Binance.US said it had raised $200mn from investors, valuing the group at just over half of the $8bn valuation investors put on FTX’s US business in January.
Regulators in major jurisdictions have tightened their scrutiny of massive cryptocurrency platforms and increased their supervision of protocols and procedures to prevent criminal activity. Several crypto platforms have opened up US offshoots to contend with particularly prickly regulations that come with serving American retail investors.
The largest investor in Binance.US is Zhao, the chief executive and founder of the much larger global Binance exchange.
Binance last year faced a storm of censures by global financial regulators, who flagged up worries about the complex financial products that are accessible to everyday traders on its international platform and about its anti-money laundering policies. The group says that it blocks US users from its global platform, pushing them instead to the US arm.
Binance.US has had three chief executives since its founding in 2019. Brian Brooks, a former senior US regulator, resigned in August after only three months on the job.
Steven McClurg, chief investment officer of digital asset specialist Valkyrie Investments said that the turnover at the top of Binance.US — and particularly Brooks’s abrupt exit — had worried investors.
“There is definitely a concern that there might be regulatory issues. Whether these concerns are founded or not, the sudden departure of an ex-regulator is enough to make investors a bit nervous,” McClurg said.
A venture capital investor with experience in crypto added that the main exchange’s tussle with regulators, including those in big financial hubs including the UK and Singapore, have placed a “cloud” over the US affiliate.
“There is generally a bit of a reputational question mark,” he said.
Binance.US, which licenses Binance’s exchange technology, is the 11th largest crypto exchange by spot trading volume, according to data from CryptoCompare in January, with higher volumes than well-known rivals such as the Winklevoss twins’ Gemini. FTX US’s trading volumes are roughly two-thirds the size, on average, this year.
Rival FTX.US, led by chief executive Sam Bankman-Fried, attracted $400mn in its first funding round from investors such as Singaporean state vehicle Temasek, valuing the company at $8bn.
At the same time, investors poured $400mn into parent company FTX as a separate deal, putting a $32bn price tag on the global company. The funds came from high-profile investors including the Ontario Teachers’ Pension Plan Board and SoftBank Vision Fund 2. FTX has also secured backing from BlackRock and Sequoia in previous rounds.
Brian Shroder, chief executive of Binance.US said the group is “very pleased with the current valuation”. He added that the company will use some of the funds for developing new products, as the exchange currently only offers cash trading. FTX also offers derivatives contracts, explaining some of the gap in the valuation of the two rivals, he said.
“We are confident that we’ll be achieving an even higher valuation [soon],” Shroder said.
Investors in the Binance.US deal included VanEck and stablecoin group Circle’s venture capital arm. VanEck also put money into FTX as part of a fundraising last summer. Schroder said the company would use the $200mn raised to improve its spot trading platform and to invest in marketing and consumer education initiatives as well as launching new products.
Zhao told the Financial Times earlier this year that Binance had beefed up its compliance arm and strengthened processes to comply with rules. He said the global exchange was not looking to raise investment.