Binance Faces Strong Charges from CFTC, It’s Not Just An FUD

On Monday, March 27, the US Commodities and futures Trading Commission (CFTC) sued crypto exchange Binance and its CEO Changpeng Zhao over the allegations of violations of derivative regulations.

The Binance chief has, however, rejected the charges stating “Ignore FUD, fake news, attacks, etc.” Although Binance has been at the center of several legal controversies in the past, this is more than just a FUD for Zhao and his team.

The blog post from Binance hints that they are ready to dig into a legal fight. However, getting past the lawsuit from the CFTC could be an uphill task for Binance. The CFTC has alleged that Binance failed to register itself as a US derivatives exchange. They further add that the crypto exchange structured its business operations in a manner to avoid registration requirements.

CFTC further added that Binance and CZ violated US laws by further encouraging US customers to use VPNs and thus bypass their location details. The agency also added that Binance directed its “VIP customers” to open accounts in the name of shell companies.

Although Binance has refuted all the allegations in its blog post, industry players believe that CFTC’s charges are quite serious in nature. Tim Massad, the former chairman of the CFTC who is now director of the Digital Assets Policy Project at the Harvard Kennedy School, told Bloomberg:

“It’s a set of very strong allegations. They are seeking a permanent injunction against the defendants, so that would include CZ personally as well as Binance, from essentially doing business in the US, basically from ever registering in the US or engaging in commodities transactions in the US.”

Binance Is Much Greater Than FTX, Too Big to Fail?

Ever since the collapse of FTX in November 2022, Binance’s dominance in the crypto space has continued to grow. The exchange accounts for 70% of all trading volumes in the crypto spot market. Similarly, in terms of the perpetual futures, Binance controls a total of 62% of the global volumes in 2022.

Thus, it enjoys a clear dominance in the crypto space over its rivals like Coinbase. The recent action by CFTC on Binance could have a broader market impact. Bitcoin and the broader crypto market tanked immediately by 3% soon as the news of CFTC’s lawsuit on Binance came out.

Binance’s ties with traditional banking partners has also frayed with the recent collapse of the Signature Bank. If the lawsuit on Binance drags for a longer time, just as in the case of Ripple, it could have greater consequences on the crypto space in comparison to the events of the recent past.

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.