CFTC shift attention to Binance with lawsuit

CFTC — The cryptocurrency sector in the United States is in disarray, with entrepreneurs clashing with regulators.

Crypto enthusiasts in the United States, for example, are not allowed to trade cryptocurrency derivatives.

To further aggravate the situation, major overseas trading platforms for crypto futures do not allow Americans to trade the products.

Only if they are registered with the Commodities Futures Trading Commission (CFTC), a formidable federal regulator, may they do so.

The CFTC has filed a lawsuit against Binance, the world’s most well-known cryptocurrency exchange, for trading without first registering with the agency.

Binance apparently contemplated bailing out rival exchange FTX in November 2022.

Yet, Binance withdrew after closely monitoring the exchange platform, preventing a big federal fraud investigation on FTX.

What happened?

Binance and its CEO, Changpeng Zhao, were accused by the CFTC with breaking US laws.

Among the alleged violations is privately advising “VIP” clients in the United States on how to dodge compliance rules.

In addition, the commission regulates derivatives trading in the United States.

According to the CFTC, Binance and Zhao urged employees and customers to avoid compliance protections in order to increase corporate profits.

The CFTC does not have the ability to pursue criminal charges.

But, the regulator has the authority to levy substantial fines, which might preclude Binance from registering in the US in the future.

The potential ban might be disastrous for the company, given the United States is home to hundreds, if not millions, of cryptocurrency enthusiasts.

The response

As the news of the lawsuit came, Binance noted that it was unexpected and disappointing.

The company stressed that it has spent a significant amount of money in the previous two years to ensure that US-based investors are not active on the platform.

Zhao tweeted the number 4 after the lawsuit was announced on Monday, referring to a previous statement he made:

“Ignore FUD, fake news, attacks, etc.”

FUD is an acronym that stands for “fear, uncertainty, and doubt” in the crypto world.

Binance has long claimed that it is not subject to American legislation since it does not have a physical presence in the country.

Despite its location in China, the crypto trading platform lacks a physical headquarters.

Changpeng Zhao believes that the headquarters of the corporation are wherever he is.

Binance’s technique, according to the CFTC’s complaint, was a willful attempt to avoid regulation.

Read also: Stablecoins witness change after Circle confirms SVB exposure

The bigger picture

The CFTC action is a setback for Binance, but it has far-reaching repercussions for the cryptocurrency sector.

But, the case is not as important as everything else that happened in 2022.

For example, the FTX bankruptcy triggered a chain reaction throughout the crypto sector, causing firms and projects exposed to the corporation to either freeze or shut down.

Terra/Luna also had a collapse, resulting in a drop in the value of crypto assets and NFTs.

Yet, significant progress has been made on the Terra/Luna issue in 2023.

Prices for the two major cryptocurrencies, Bitcoin and Ethereum, fell by more than 3% on Monday, a regular day for cryptocurrency trading.

Worst-kept secret

The CFTC’s lawsuit is remarkable for naming one of its worst-kept Bitcoin secrets.

Consumers in the United States have incredibly simple access to potentially dangerous offshore crypto derivatives, which should be prohibited.

Because crypto derivatives are leveraged bets on very volatile assets, they are accessible to anybody with a VPN.

While this method is straightforward, it is strongly discouraged.

The endgame

The most likely outcome, according to Blockchain Intelligence Group crypto compliance and regulation specialist Timothy Cradle, is that Binance will pay hundreds of millions of dollars in fines to the CFTC.

Furthermore, the company would be prevented from registering derivatives exchanges.

The move would not only be disastrous for American customers, but it would also have a significant impact on Binance’s revenues.

According to the lawsuit, US consumers account for 16% of the revenue generated by Binance’s derivatives products.

Other regulators

The revelation on Monday only adds to the regulatory pressure on one of cryptocurrency’s most well-known characters.

According to Bloomberg, the US Tax Administration and the Securities and Exchange Commission are also investigating Binance.

This week, the SEC issued a Wells Notice to Coinbase, one of the top US-listed crypto exchanges, for possible securities law violations.

Silvergate and Signature Bank, two major connections to the traditional banking sector, were lost to the crypto industry in early March.