0/ This is spot on but it only tells part of the story. Based on our understanding of the Chinese exchanges and our dealings with them, we still believe Binance has the better strategy and a superior team, and therefore will do better over the long run.
1/ Huobi and OKEX are more well positioned with the Chinese authorities than Binance. However, it is not clear that this advantage is that critical in the short run given China’s stance on cryptocurrency trading.
2/ In the long run, this regulatory goodwill may translate into a license and open the doors to China’s institutional investor base but that is still many years away.
3/ Recognizing the regulatory landscape in China is currently not supportive of cryptocurrency trading, Binance has relied on regulatory arbitrage and focused on being physically decentralized. This is a deliberate and short term strategy.
4/ Having said that, Binance has been proactively working with various regulators around the world who are embracing crypto and opening their doors to cryptocurrency exchanges. It has currently has fiat on-ramps in Singapore, Russia, Nigeria and India.
5/ If China’s attitude towards cryptocurrency trading changes and Binance decides it needs to cosy up to regulators, it would be relatively easy for Binance to do the same given their investor base and relationships in China.
6/ Even if they don't have the right relationships, it will be easy to bring this in-house. Even the traditional foreign banks that have gone into China have done this effectively over the years and built strong relationships with regulators.
7/ Alternatively, Binance can choose to be domiciled in a jurisdiction such as Singapore where it already has an exchange. The MAS should be supportive Singapore's goal to become the Fintech hub of Asia and Singapore doesn’t yet have a dominant crypto startup and exchange.
8/ Hong Kong has major crypto exchanges such as BitMEX and BC Technology (the listed vehicle for OSL and ANXOne) and will also has its eyes on the same title.
9/ To date, Binance has rightly focused its efforts on execution and built a leading position among crypto exchanges. It is today a global player rather than a Chinese exchange.
10/ It is much harder to replicate Binance’s business footprint, innovative culture and performance-oriented DNA than it is to build regulatory goodwill in China.
11/ That is the reason why Binance will extend its lead over OKEX and Huobi over the long run and why it deserves to trade at a significant valuation premium to its two Chinese competitors.
