Binance seeks investments from sovereign wealth funds: Any implications?

Franklin Izuchukwu
By Franklin Izuchukwu

Crypto may have come to stay, but specific actions can derail or uplift the trust in the crypto market. Here is how investment from Sovereign wealth funds in Binance may affect the cryptocurrency markets.

Binance CEO Changping Zhao during an interview.

Cryptocurrency has been under intense scrutiny from governments and private firms alike. The clampdown has been historic; China banned every crypto activity in the nation on September 2021.

Britain's top financial watchdog, Financial Conduct Authority (FCA), demanded more regulation on Binance; even the crypto-friendly Singapore has mounted intense scrutiny on the leading exchanger. The Japanese government also termed all Binance's activities in the country as illegal.

The negative vibes have refused to halt Binance growth and trading volume amid rumours that the top exchange is laying the groundwork to be listed on the US stock market.

The recent moves to appease regulators came as no surprise. The report that Binance is involved in talks with Sovereign Wealth Funds (SWF) to offer room for investments shows the length Biannace Co-founder and CEO is willing to go.

Therefore, there is a need to analyse the negative and positive prospects of the deal, as mentioned earlier, upon implementation.

The pride and value behind the digital market have always been the absence of politics and government, but what happens when the largest cryptocurrency exchange in the world is keen on seeking government-backed investments.?

What is a Sovereign wealth fund?

A Sovereign wealth fund (SWF) is simply a state-owned fund. SWF is generated from varying government revenue streams like budget surplus, federal reverses, returns from natural resources, trade surplus etc.

The government uses sovereign wealth funds to cater for its citizens via social security programs, pensions or whatever the government deems fit. However, these funds are not allowed to sit on the bank but are rather re-invested back into the domestic or international economy to get back returns.

Since governments own sovereign wealth funds, it is only logical to state that any investments made by any SWF are a direct act of the government because they ultimately decide where the fund goes.

Most Sovereign wealth fund holds a substantial amount of capital ranging from 500 billion to 1 trillion USD. The top SWF are:

  • Norway Government Pension Fund Global with about $1,073,590,000,000,
  • China Investment Corporation which holds about $940,604,000,000,
  • Abu Dhabi Investment Authority
  • Kuwait Investment Authority and
  • Hong Kong Monetary Authority Investment Portfolio

A familiar example of investments made by a sovereign wealth fund should be acquiring Newcastle football club by the Public Investment Fund, the Sovereign wealth fund of Saudi Arabia.

Implications of SWF investments and the future of cryptocurrency

The negative impact:

As stated earlier, the whole idea behind cryptocurrency is financial independence and taking back power from the government.

The details of the said investment talks have not yet been revealed; hence everything concerning this topic is speculative at best.

However, one could assume that once the crypto space opens its doors to government investments, what's preventing the government from influencing future policies on executing and implementing crypto projects?

One could argue that Binance or any other crypto exchange will never allow government bodies to acquire a considerable stake in their respective companies. Still, a threat to pull out investments could be a push to do what the state wants.

One of the many advantages of digital currencies is the service of anonymity offered by the blockchain network. The crypto market was pivotal during the #EndSars protest in Nigeria; donations were made to sponsor the protest through bitcoin after the government blocked the bank accounts of the alleged sponsors.

The EndSars protest in Nigeria was successful. It abolished the Special Anti Robbery Squad (a unit in the Nigerian Police Force). The crypto ecosystem can play an essential role in society; to serve as a check on the government.

While the Chinese government has never hidden their disdain for cryptocurrency, it could take advantage of this current opening by legalising cryptocurrency in China under strict regulation and scrutiny.

Other government dictators can also follow suit as the need arises.

The bright side:

There are about two or three sides to every story. The crypto market has been craving acceptance and legalisation since its inception. Truth be told, Crypto investors cannot ignore the role of government in this regard.

Some government institutions have refused to crack down on crypto but instead sort of better ways for management through regulation and compliance laws.

For example, the SEC approved the first-ever bitcoin ETF in a move that resonated positivity throughout the crypto market. Other private corporations have also sort ways of carving a niche in the digital ecosystem, as seen with the recent moves made by digital wallets like Square and PayPal.

It is rumoured that Binance is seeking investments from Sovereign Wealth Funds to garner a broader acceptance from government institutions and hope they do not crack down on the exchange platform.

Binance CEO Changpeng Zhao hopes that perception and relationships will change for the better if Sovereign wealth funds invest in the company.

Bitcoin was used as a souce of donation to support the EndSars protest in Nigeria.

Hopes may be high on the SWF investment talks, but Zhao pointed out that he is careful and will avoid limiting ties to one country.

On a second note, no one knows how the market will react to the news, but it is expected to have a ripple effect; only time will tell.

The eventual ramifications of the proposed deal may not be known today but Crypto investors should be on the lookout for more details.

Conclusion

It will be a good advantage if the government lets sleeping dogs lie when it comes to cryptocurrency. However, there should be a limit when it comes to lobbying the government.

The crypto market cannot afford to lose investors' trust placed on it because of voluntary government partnerships and investments.

The digital currency has come to stay; the progress so far indicates that progress cannot be limited. China may have banned cryptocurrency, but they rolled out the country's digital currency.

Nigeria witnessed the same fate when the Central bank banned financial transactions relating to crypto but proceeded to unveil a digital currency for the nation. Today, Bitcoin is the legal tender in El Salvador.

The testimonies above prove that progress has been achieved; it may be slow but steady.