Close
Many market experts believe that the CFTC case against Binance could spell the beginning of the end for the cryptocurrency exchange in the US.
Binance is no stranger to regulatory issues; in fact, it has frequently in the past been able to get around or around them in order to cooperate with authorities.
The exchange, however, has come under fire from numerous organizations when it comes to the United States.
A number of American finance authorities are currently looking into the cryptocurrency exchange. A lawsuit has been brought in connection with an investigation that began in early 2021 by one of the main derivatives market authorities in the United States. Some of these inquiries stretch back to 2018, for example.
On March 28, the U.S. Commodities Futures Trading Commission brought legal action against Binance, its CEO Changpeng Zhao, and Samuel Lim, a former top compliance officer.
According to the complaint, Binance broke American derivatives laws by providing its trading services to Americans without first filing with the proper market authorities. The CFTC charged Binance with putting business success ahead of regulation compliance.
The CFTC has filed accusations against Zhao and Lim in addition to the exchange, which is another reason why the case gained attention. Additionally, Binance and its CEO have been charged by the US regulator with seven breaches of the controlled foreign company regulations and the Commodities Exchange Act.
David Waugh, executive editor of the Daily Economy at the American Institute for Economic Research, told Cointelegraph that regulators appear to be doing everything they can to halt the development of the cryptocurrency industry and that the CFTC lawsuit is not unexpected.
“Significant regulatory action could prompt Binance to increasingly shift its business operations beyond the United States. Moreover, considering Binance.US’s sizable share of U.S. Bitcoin trading volume, the potential closure of the exchange’s American operations could lead to a decline in domestic trading volume unless traders transition to alternative platforms.”
The CFTC has taken aggressive action against big businesses; it initiated legal proceedings against Tether and Bitfinex in the past, which had a significant impact on the cryptocurrency scene. It appears that the case against Binance will be no different.
Binance, Zhao, Lim, and all of their affiliates have been ordered by the CFTC to stop trading on registered entities, having any kind of commodity stake, filing or exempting themselves from registration with the CFTC, or serving as the principal, an official, or an employee of a registered entity. Additionally, it has requested that Binance submit to a jury hearing and give back any trading earnings, revenues, commissions, or fees obtained from customers in the United States.
Evidence in the CFTC case has accumulated, including private chat logs between Zhao and officials of Binance. Some market analysts think it may very well decide the future of the international cryptocurrency trade in the US.
The case, according to Mark Fidelman, the creator of SmartBlocks, has the potential to reverse years of progress made by Binance’s sibling company in the United States, Binance.US, which the global exchange claims operates as an autonomous entity. Charges against Binance are serious, and the consequences could be the demise of the company, according to Fidelman.
Additionally to the regulatory violations, Binance is explicitly mentioned in the complaint.Merit Peak also has US business affiliates. Zhao is claimed by the CFTC to have direct authority over Binance and all of its affiliated businesses.
The complaint also explicitly links in Trust Wallet, Binance Labs (due to U.S. exposure) and many Binance workers with U.S. exposure, including exchange-employed community organizers dubbed “Binance Angels” as grounds for a U.S. filing.
The most daunting allegation could be that Binance had nearly 300 accounts directly or tangentially connected to Zhao that traded against customers.
In the past, the CFTC’s lawsuits against cryptocurrency firms have been resolved with sizable penalties and orders to stop activities. According to Terrence Yang, a Harvard Law JD and managing director of the Bitcoin-focused company Swan Bitcoin, it appears doubtful that Binance.US will remain open for very long, based on what the CFTC can demonstrate in court.
“On the one hand, Binance.US offered fewer products than Binance and has customers who identify as U.S. and Binance.US recognizes as U.S. customers. On the other hand, if the CFTC can prove to a judge that Binance.US helped Binance siphon U.S. customers who wanted to do more exotic products and use VPNs to hide their U.S. identity, then Binance.US may not be viable going forward.”
A decentralized finance engineer and angel investor named Adam Cochran described the likely outcome of the case in a discussion on Twitter. He asserted that the CFTC would prevail if Binance and the other execs were to avoid contact with American judges or fail to show up to defend themselves in court. However, if they cooperate, the discovery procedure will expose all of their records to American authorities from all companies, including those that Zhao directly owns, causing additional problems.
The CFTC has brought severe charges against Binance, but the cryptocurrency company faces other threats as well. The SEC, Department of Justice, and Internal Revenue Service are all actively looking into the transaction.
Binance possessed a 92% market share of the total number of Bitcoin trades at the end of 2022. At the beginning of last year, the exchange’s market share was only 45%, but the elimination of trading costs in June and the demise of competitor exchange FTX in November helped it draw customers.
A major provider of market liquidity is Binance. Binance is a major market maker’s go-to platform for trading and acquiring liquidity. Any interruption to Binance’s business activities will have an effect on the market’s ability to locate prices and liquidity sources. This would eventually harm both retail consumers and institutional traders.
Jason Allegrante, chief legal and compliance officer at digital asset bank FireBlocks, told Cointelegraph that the outcome of the CFTC lawsuit could hasten the trend of companies leaving the U.S. market, despite the fact that the majority of these ongoing investigations and CFTC allegations are still just accusations and haven’t been proven in court.
Depending on how Binance is eventually affected, this could have a profound effect on the marketplaces for digital assets around the world. Given the number of international trades that travel through it, Binance is now comparable to a crucial financial market infrastructure, for better or worse. Disruption of operation at Binance will seriously hinder the market’s ability to source liquidity, he said.
In the long term, he continued, new players in the financial markets, such as Nasdaq, which recently revealed plans to join the market for digital assets, will appear as alternative sources of liquidity.
According to Allegrante, American authorities are attempting to “push out cryptocurrency by creating legal adversity and also legal uncertainty.” He used Coinbase as an illustration, a publicly traded cryptocurrency exchange that is governed by US law and recently got a Wells warning from the SEC.
The commodities authority has filed an enforcement case against a separate exchange for essentially operating in the same industry, he said. With one firm facing SEC allegations, Coinbase, and another facing CFTC allegations, Binance, this is the worst of both situations for cryptocurrency.
Globally, Binance has been balancing on a regulation precipice, and over the years, it has been the target of numerous compliance concerns from nations including the UK, Japan, Germany, Australia, and many others. However, many experts believe that the CFTC case could linger over the exchange’s head and become a burden.
