Latest court battle could alter crypto landscape in US

Would You like a feature Interview?

All Interviews are 100% FREE of Charge

Regulatory issues are nothing new to Binance and in the past they have often overcome or circumvented such obstacles and ultimately worked with regulators.

However, when it comes to the US, the exchange has become the crosshairs of multiple institutions.

A number of US financial regulators have ongoing investigations into cryptocurrency exchanges. Some of these investigations date back to 2018, and now one of the major US derivatives market regulators has filed a lawsuit in connection with an investigation that began in early 2021.

The U.S. Commodity Futures Trading Commission filed a lawsuit on March 28, along with Binance CEO Changpeng Zhao and former chief compliance officer Samuel Lim.

The lawsuit alleges that Binance violated U.S. derivatives laws by providing derivatives trading services to U.S. customers without being registered with the appropriate market regulator. The CFTC has accused Binance of prioritizing commercial success over regulatory compliance.

The lawsuit also made headlines as the CFTC filed charges not only against the exchange, but also against Zhao and Lim. US regulators have also accused Binance and her CEO of her seven violations of the Commodity Exchange Act and the rules of controlled foreign companies.

David Waugh, editor-in-chief of the Daily Economy at the Institute for Economic Research, told Cointelegraph that the CFTC lawsuit is not surprising given the U.S. government’s comprehensive approach to cryptocurrency companies. .

“Significant regulatory action may force Binance to increasingly shift its operations out of the United States. Moreover, given that Binance.US accounts for a significant share of US Bitcoin trading volume And unless traders move to alternative platforms, the exchange’s U.S. operations could shut down, potentially reducing domestic trading volumes.”

The CFTC has been aggressively chasing big companies and has previously launched regulatory enforcement actions against Tether and Bitfinex, resulting in a major shift in the cryptocurrency landscape. The lawsuit against Binance appears to be no exception.

Recent: Tips for pitching to male VCs: Female crypto founders take off

The CFTC reserves the right to protect Binance, Zhao, Lim and all affiliates from trading in a registered entity, holding commodity interests, being registered or exempt from the CFTC, or being a principal, officer or employee of a registered entity. I demanded a ban on my actions as a member. It also demands that Binance repay trading profits, revenues, commissions, and fees earned from its U.S. customers and pay civil penalties assessed by the court and undergo a jury trial on the matter. I’m here.

Binance’s U.S. fate looks uncertain at the moment

The CFTC lawsuit gathered evidence including Zhao’s internal chat transcripts with Binance executives. Some market experts believe it will surely seal the fate of US global cryptocurrency exchanges.

SmartBlocks founder Mark Fidelman told Cointelegraph that the lawsuit could undermine years of progress for Binance’s US sister company, Binance.US. . Fidelman said, “The charges against Binance are harsh and the penalties could end the business.”

In addition to regulatory violations, the lawsuit also mentions Merit Peak, a trading subsidiary of Binance.US. The CFTC claimed that Zhao has direct control over Binance and all companies associated with it.

The lawsuit also cites a number of people with US exposure, including Trust Wallet, Binance Labs (with US exposure), and a community builder employed by an exchange called the “Binance Angels” as the basis for the US lawsuit. of Binance specifically tied to employees.

The most difficult accusation is that Binance may have had around 300 accounts directly or indirectly linked to Zhao and made transactions to its customers.

CFTC lawsuits against cryptocurrency companies have been settled in the past with hefty fines and cease and desist orders. Terrence Yang, a Juris Doctor at Harvard Law School and managing director of bitcoin-focused firm Swan Bitcoin, told Cointelegraph that depending on what the CFTC proves in court, Binance He said it was unlikely that the US would continue to operate for much longer.

On the one hand, we perceive that Binance.US offers less products than Binance, that its customers are US, and Binance.US is US customers. On the other hand, if the CFTC can prove to a judge that Binance.US made more outlandish products and helped siphon off U.S. customers who were willing to use a VPN to hide their U.S. identities. Binance.US may no longer exist. ”

Binance did not directly respond to Cointelegraph’s request for comment.

The company released an official response to the lawsuit, in which Mr. Zhao said the complaint appeared to contain incomplete descriptions of the facts and “had failed to characterize many of the issues alleged in the complaint.” I do not agree,” he said.

Many believe the lawsuit is critical to Binance’s future in the U.S., with some further classifying it as a political move between regulators.

NEW: According to a familiar source, @CFTC lawsuit dismissed @Binance without warning, like @coinbaseWells Notice. Some industry experts believe this is a political move by her CFTC to show the SEC that this is a commodity issue.

— Eleanor Terrett (@EleanorTerrett) March 27, 2023

Decentralized finance developer and angel investor Adam Cochran explained the final scenario of the lawsuit in a Twitter thread.he Said If Binance and the other mentioned executives didn’t get involved in US courts, or appeared to not defend themselves in court, the CFTC would win. To stir up other issues, the discovery process will result in the international release of all books to U.S. regulators from all entities, including those personally owned by Zhao.”

18/23

The only semi-safe path for Binance here is likely a settlement where the CFTC continues to demand billions of dollars.

— Adam Cochran (adamscochran.eth) (@adamscochran) March 27, 2023

Potential Impact on Crypto Markets

The CFTC accusations against Binance are serious and crypto exchanges need to worry more than just the CFTC. The exchange is also currently under investigation by the SEC, Department of Justice, and Internal Revenue Service.

By the end of 2022, Binance will have 92% Market share of the total volume of Bitcoin (BTC) transactions. The exchange’s market share was just 45% at the beginning of last year, but the removal of trading fees in June and a drop in rival exchange FTX in November helped attract consumers. .

Binance is an important source of market liquidity. Major market makers use Binance to execute trades and obtain liquidity. The market’s ability to find sources of price and liquidity will be impacted by the disruption to Binance’s operations. Individual clients and institutional investors ultimately suffer as a result.

While most of these ongoing investigations and CFTC claims are mere accusations at this point and have not been proven in court, Jason Allegrante, chief legal and compliance officer at digital asset bank FireBlocks, said the CFTC He told Cointelegraph that the outcome of the lawsuits could accelerate as companies pull out of the U.S. market.

“Depending on how Binance is ultimately affected, this could shock the global digital asset market. For better or worse, Binance is currently at a Similar to critical financial market infrastructure, a service disruption at Binance would pose a serious obstacle to sourcing liquidity in the market,” he explained.

Longer term, he added, alternative sources of liquidity will emerge in the form of new entrants, including traditional financial market participants such as Nasdaq, which has just announced plans to enter the digital asset market.

Recent: The Impact of the US TikTok Ban on the Crypto Industry

Allegrante said U.S. regulators are “trying to push cryptocurrencies out by creating legal adversity and legal uncertainty.” He gave the example of Coinbase, a US-regulated public crypto exchange that recently received a Wells Notice from the SEC.

he said: When it comes to cryptocurrencies, this is the worst of both worlds: one is Coinbase, which has SEC claims, the other is Binance, which has CFTC claims. ”

Binance walks a regulatory tightrope around the world and over the years has received numerous compliance complaints from countries such as the UK, Japan, Germany and Australia. However, according to many experts, the CFTC lawsuit could be the exchange’s strangling albatross.