Are Regulations Finally Going to Drop BNB from the Top-10??

You are reading an excerpt from our free but shortened abridged report! While still packed with incredible research and data, for just $20/month you can upgrade to our FULL library of 50+ reports (including this one) and complete industry-leading analysis on the top crypto assets. 
Becoming a Premium member means enjoying all the perks of a Basic membership PLUS:

• Full-length CORE Reports: More technical, in-depth research, actionable insights, and potential market alpha for serious crypto users
• Early access to future CORE ratings: Being early is sometimes just as important as being right!
• Premium Member CORE+ Reports: Coverage on the top issues pertaining to crypto users like bridge security, layer two solutions, DeFi plays, and more
• CORE report Audio playback: Don’t want to read? No problem! Listen on the go

Regulation

BNB’s future is tied to Binance’s success as a profitable company, including financial, cryptocurrency, and Binance-specific regulatory risks.
Binance’s extensive financial product suite places considerable scrutiny on the business, as the finance industry is heavily regulated in most countries. Binance’s efforts to launch regional or country-specific exchanges and roll out products according to regulatory approval seem to indicate Binance is cognizant of the risk.
Binance has moved headquarters from country to country to avoid regulation, most recently seeming to indicate there is not a headquarters after Malta denied Binance under its jurisdiction, the last known location of Binance’s headquarters. This represents a regulatory risk as businesses must fall under some jurisdiction. It is unprecedented for a legitimate business not to submit to some regulation scheme.
Binance is currently under investigation by the U.S. Internal Revenue Service as well as the Department of Justice for money laundering as well as dealing with inquiries from the Commodity Futures Trading Commission (CFTC) over whether Binance allowed U.S. residents to trade on its exchange. It is important to note that of Q2 2022, "[t]he federal agencies haven’t accused Binance of wrongdoing." However, over the course of 2021, Binance hired a slew of high-profile individuals to join its regulatory advisory team, including former U.S. senator Max Baucus as a regulatory advisor and two former members of the Financial Action Task Force (FAFT) to its advisory team. Announced in July 2021, Binance is also seeking a new CEO, one with a regulatory background, to replace Changpeng Zhao (CZ). This change may have been spurred by the onslaught of recent regulatory backlash or that the US subsidiary of Binance is planning to IPO, most likely sometime in 2022. 
Binance's legal issues are not isolated to the US. in 2020, Binance faced regulatory pushback in Europe for providing stock token trading on its exchange. Additionally, in June 2021, the UK's lead financial regulator announced that Binance's UK division is not permitted to conduct operations related to regulated financial activities in the country. This order followed a similar one from Japan, stating that Binance isn't registered to do business in the country. Binance's regulatory troubles again intensified in late July 2021 when Malaysia's Securities Commission ordered the company to cease operations in the country.
However, as of May 2022, Binance is officially a fully regulated digital asset service provider (DASP) in France. This regulatory breakthrough for the often "marooned" exchange makes Binance the first major global exchange to legally operate in France. A Digital Asset Service Provider (DASP) designation aligns with the Crypto-Asset Service Providers guidelines set forth by the EU commission under MiCa (Markets in Crypto Assets), a proposed regulatory framework for crypto businesses operating in the EU. The DASP designation permits Binance to custody digital assets, exchange digital assets for legal tender, and operate a trading exchange.
The SEC's laws on the marketing and sale of securities are intended to prevent a certain mischief: insiders and promoters of a business will have more information than investors (information asymmetry). This is remedied by the SEC requiring truthful and comprehensive disclosure in a regulated format.
The Howey test, the main case law on the features of a security', remains the best measuring stick despite its many shortcomings when applied to crypto assets. For the purposes of this analysis, understand that the degree of decentralization of a protocol is a significant factor in determining which, if any, United States securities regulations apply.
“When a promoter, sponsor, or other third party (or affiliated group of third parties) (each, an “Active Participant” or “AP”) provides essential managerial efforts that affect the success of the enterprise, and investors reasonably expect to derive profit from those efforts, then this prong of the [Howey] test is met.
There are essential tasks or responsibilities performed and expected to be performed by an AP, rather than an unaffiliated, dispersed community of network users(commonly known as a “decentralized” network).”
-SEC guidance “Framework for ‘Investment Contract’ Analysis of Digital Assets
The BNB token was launched in an initial coin offering, which the United States Securities and Exchange Commission has viewed unfavorably and has yet to rule broadly. Some ICOs have been retroactively penalized for violating US securities law.
BNB can be deemed a security if it satisfies certain properties based on the common definition and interpretation of the Howey Test, the most common legal test applied to securities. The four component questions of the test are listed below:

1. Is there an investment of money?
2. Is there an expectation of future profits?
3. Is the investment of money in a common enterprise?
4. Do any profits come from the efforts of a promoter or third party? 

Many digital assets lack clear utility and thus have no purpose other than for retail investors to speculate on price (e.i. invest). BNB, however, has clear utility on the platform if for nothing else than to receive discounted trading fees. This appears to be BNB’s best argument for not being classified as a security as Binance US CEO Catherine Coley reaffirmed recently on a podcast.
However, as of Q2 2022, the Securities and Exchange Commission (SEC) is allegedly probing Binance’s native token BNB for potential violation of securities regulation.
The biggest argument for BNB being classified a security according to the Howey Test is its dependency and centralization around the “common enterprise” and “third party” company, Binance. Other tokens created by large centralized companies have recently run into opposition from the US regulators, such as Telegram abandoning its project entirely after a multi-year battle with the SEC.
Additionally, the buyback and burn procedure creates a deflationary nature, uses language indicative of an equity buyback. While the actual buyback is not actually a buyback, the use of the word buyback could bring unwanted regulatory scrutiny. 
Due to BNB’s original ICO-type fundraising, its multitude of potential use cases, and unclear jurisdiction, teasing apart the legal standing of BNB is fraught with challenges until more guidelines become clear. 
2022 has been a year of regulations catching up. Binance has been securing licenses to operate in many different countries. In 2022 Binance secured registration in Spain, Italy,  France, and Dubai. The days of operating without licenses have come to a close. Regulations can make the barriers of entry higher for exchanges, but Binance is very well financed and should have no problem coming into compliance within jurisdictions around the globe. The regulator’s main concerns are with Anti-Money-Laundering and Know-Your-Customer compliance. Reuters reported that Binance has served crypto traders in Iran, which is in violation of US sanctions. This could jeopardize Binance.US’s future operations.