Binance's Changpeng Zhao Pleads Guilty. Here's What That Means for Your Crypto

Binance founder Changpeng Zhao -- also known as CZ -- has pleaded guilty to charges of money laundering and other violations. Zhao will pay a $50 million fine and step down from his position as CEO of the popular cryptocurrency exchange. He is expected to face prison time, but the length of his sentence has not yet been decided.

Binance will pay over $4 billion in fines, which is one of the largest corporate penalties in U.S. history. At a press conference to announce the charges, key players in U.S. finance lined up to stress the consequences of breaking U.S. financial laws. "Binance prioritized its profits over the safety of the American people," said Attorney General Merrick Garland. 

Treasury Secretary Janet Yellen added, "Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform."

What the guilty plea means for Binance

The deal draws a line under one part of Binance's regulatory woes and marks the end of the Justice Department's three-year investigation. The deal is part of a joint settlement involving the Treasury, the Office of Foreign Assets Control, and the Commodity Futures Trading Commission.

It's worth pointing out that the Securities and Exchange Commission (SEC) was absent from Tuesday's proceedings. In June, the SEC brought a series of charges against Binance, including the unregistered sale of securities and misleading investors. According to Bloomberg, the SEC lawsuit will continue, so Binance is not out of the regulatory woods yet.

Even so, the deal means that Binance can continue to operate, albeit with much greater oversight, new management, and a $4 billion fine. Binance has agreed to five-year monitoring, significant compliance undertakings, and a "complete exit" from the U.S. The Treasury will monitor Binance's books and systems to ensure compliance. 

If you are a Binance.US customer, be aware that it is a separate entity. According to CoinDesk, Binance.US will not close down as part of the international exchange's exit from America. Even so, Binance.US has been struggling -- users can no longer make dollar deposits or withdrawals and it has laid off over a third of its staff. 

What the guilty plea means for crypto investors

Cryptocurrency prices have been edging upwards in recent months. Bitcoin (BTC) hit an 18-month high of over $37,000 on Nov. 13. It fell slightly on the news of CZ's guilty plea, but held above $35,000. 

Here are two of the biggest takeaways from Tuesday's deal.

1. Crypto can't escape laws against money laundering

As a crypto investor and Binance user, it is worrying to learn about what's happened behind the scenes. Personally, I don't want to be inadvertently financing illegal activities when I buy crypto. The good news is that there are laws in place to prevent money laundering and authorities will enforce them. The Justice Department's investigation shows that cryptocurrency platforms cannot act outside of the law, wherever they are based. 

How you can protect yourself against money laundering: Look for reputable crypto exchanges with strong know-your-customer requirements. Check to see if the platform has an anti-money-laundering policy, compliance team, and ongoing monitoring of transactions. 

Be wary of anonymous decentralized exchanges and so-called privacy coins that are harder to trace. While there can be many good reasons to use them, there is also a greater risk that cash has connections to illicit activities.

2. Binance's future looks more stable

The regulatory moves against Binance worldwide have sparked fears about what might happen if this crypto giant were to fall. We've already seen that the failure of one crypto platform can have ripple effects throughout the industry. If Binance were to collapse, those ripples would be more like tsunamis.

This is why crypto investors can take solace from the Binance deal. It is a significant blow for the company, but one that keeps it in operation. Moreover, the deal may set a new tone for compliant crypto exchanges that investors can trust. 

Mike Novogratz, CEO of Galaxy Digital, summed it up in a post on X, formerly Twitter, "Binance setting with the U.S. regulators would be super bullish!! Not sure if reports are true but I personally am hoping for a settlement and for the industry to move forward."

How you can protect yourself against crypto exchange failure: If you keep your crypto on a centralized exchange, whether it is Binance, Binance.US, or another platform, those funds could be at risk if the exchange fails. Crypto platforms do not have the same protections as banks. For example, FDIC insurance doesn't cover crypto assets or exchanges. 

Consider moving your assets to a non-custodial crypto wallet. The big advantage of a crypto wallet is that your funds can't get frozen or swallowed up in bankruptcy proceedings if your exchange collapses. That said, crypto wallets are not perfect -- they can be difficult to use and you are responsible for the wallet's security. Make sure you save the security phrase somewhere safe, as wallets don't have a handy "'forgot password" button. 

Bottom line

Cryptocurrency investing carries a lot of risk, both in terms of the volatility of the assets and the lack of regulation around the platforms that trade them. The actions against Binance highlight the dangers of circumventing money-laundering laws and the importance of knowing who you are trading with. Use a reputable exchange and consider using a crypto wallet to store your funds.