Why Binance Is Dipping Its Toes Into TradFi

Wealth management firms aren’t the only ones trying to be one-stop shops.

Earlier this month, the cryptocurrency exchange Binance began offering direct access to options on more than 1,000 US stocks and ETFs. Although these assets are currently available only to international customers, it’s the latest effort by a major crypto operation to make its mark on the world of traditional finance, and vice versa, as crypto ETFs’ popularity continues to attract broker-dealers and banks. The move also signals the platform’s goal of presenting itself to investors as more than just a crypto marketplace.

“Binance increasingly wants to be viewed as a full investment platform,” said Hesom Parhizkar, cofounder of AdvizorPro. “Crypto remains a relatively small pool of assets compared with the enormous traditional wealth management and RIA markets, so offering stocks, ETFs and related products gives Binance access to a much larger opportunity.”

A Sturdy Foundation

One reason Binance might make such a move is that it already had much of the necessary infrastructure in place, Parhizkar said. Crypto exchanges that are built to help users open accounts, buy digital assets and navigate mobile, intuitive interfaces — as well as monitor trades in real time — create a user experience that is already “more modern than what investors encounter at traditional custodians,” he said. And Binance isn’t alone. Other exchanges are also combining crypto offerings with traditional or tokenized equities:

• In February, Coinbase opened stock trading to everyone in the US, enabling American users to trade ETFs and equities alongside crypto holdings.
• In July, Robinhood made stock tokens (tokenized debt securities that give investors price exposure to stocks and ETFs) available in 120 countries.
• Last month, Kraken similarly gave some European customers access to more than 7,000 US-listed stocks.

“The dividing line between crypto and traditional finance is becoming much less meaningful to the end investor,” Parhizkar said. 

One and Done? Binance is betting on investor demand for a “do-it-all” platform, Parhizkar said, which may exist, particularly among younger and more digitally native investors. Vanguard’s acquisition of Altruist is another indication that large traditional asset managers recognize the value of modern custody technology, he added.

“I wouldn’t say that transaction directly caused Binance’s strategy, [since] Binance began introducing US equities before the Vanguard announcement,” Parhizkar said. “But it reinforces the competitive pressure.”