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It seems that there are really four ways that crypto works
- You are a ‘true believer’ so you buy and hold BTC or another random coin
- You think you can get rich quick by doing ‘greater fool theory’ on a pump and dump meme coin
- You trade leveraged derivatives on meme coins and ‘regular’ coins
- You use it to access dollars via stablecoins
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Recently Binance failed in its efforts to get a crypto license in the European Union.
Much has been made of this by Binance’s peers, who have used it as an opportunity to dunk on them.
OKX’s founder seems to derive more pleasure from this activity than any other hobby. Learning piano or going to Hyrox class might give you your kicks, but for Star Xu, there is no greater joy in life than casting aspersions against Binance.
Taking a step back though, does Binance really need Europe?
In May, the company’s top five sources of traffic were:
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In other words, no countries in the European Union and all countries they can use to offer derivatives with high leverage.
I have written this email for a little over four years and have intermittently run that test. I cannot think of a single occasion in that time where Binance had an EU country in its top 5.
This is also borne out by the company’s own statistics.
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In May, they published a report saying that 77% of their clients come from emerging markets.
To top that off, the definition they use for ‘emerging market’ is rather an odd one. Binance says the definition is based on “the World Bank’s income-level methodology.”
However, the World Bank does not call countries ‘emerging market’ or ‘developed market’. They just bucket them into four different income categories.
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China, a country that isn’t named once in Binance’s May report (lol), is in the second-highest income level in this ranking schema. On that basis, would you include the country as an emerging market?
China has historically been Binance’s biggest per country source of revenue, so if we assume they are not included in the 77% figure, it would imply the company has very few customers in the western world.
If that’s the case, they seem to be doing fine without Europe.
Now let’s go back to the original four bullet points for why people use crypto.
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If you are in Europe and operating under MiCA, you cannot easily offer pump and dump meme coins.
You cannot offer leveraged derivatives in a way that makes them attractive to users because of the heavy restrictions on marketing and leverage.
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Finally, there is no compelling reason for users to get stablecoins. Right now, if you are in any European Union country, you have a fairly stable currency, rule of law, and you can easily get access to dollars if you want.
Contrast that with Binance’s top 5 countries, which largely have capital controls and unstable currencies. South Korea is the only exception to this but they only lifted (some) capital controls this year and seem – like most other East and Southeast Asian countries – to be perpetually pissing their pants about the dollar exchange rate because they got hit so badly during the Asian financial crisis in the late 1990s.
In practice, what this means is that Europeans can basically only do one of the four things people use crypto for under MiCA. They can just buy Bitcoin and hold it.
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Note that this is very likely why Kraken launched prop trading – it is a way of circumventing regulatory restrictions on derivatives trading.
Finally, even though the rules are so insanely strict that they remind me of the Spanish onslaught against CFD brokers, MiCA does allow for reverse solicitation business.
Binance is such a big brand and so well known, that I imagine they could do zero marketing and still get a lot of clients.
Moreover, if they allow customers to trade in perpetuals with better leverage than within the EU, there is actually an incentive for some customers to go to them to trade – much like with offshore CFD brokers today.
This is why I am confident companies like Binance – particularly OKX and ByBit – are just doing MiCA for branding. I doubt that long-term they will invest any meaningful money into the region and will just use it to market in their core markets.
