Cryptocurrency exchange Binance is no stranger to regulatory issues. In the past, it has successfully navigated these obstacles and eventually worked with regulators on several occasions. The exchange has come under fire from different agencies, though, when it comes to the United States.
A number of financial regulators are currently looking into the cryptocurrency exchange, with some investigations going as far back as 2018. Currently, a lawsuit has been filed in connection with an investigation that began in 2021 by the U.S. Commodities Futures Trading Commission (CFTC). The lawsuit seeks to charge Binance, its CEO Changpeng Zhao and Samuel Lim, a former chief compliance officer.
According to the lawsuit, Binance broke American derivatives laws by providing its trading services to Americans without first registering with the proper market regulators. Moreover, the CFTC accuses Binance and Zhao of violating seven guidelines of the CFC and CEA.
The regulator demands that Binance, Lim, Zhao and all subsidiaries be prohibited from holding any kind of commodity interest, trading on registered entities, exempting or registering with the CFTC, and acting as the principal, employee, or officer of a registered entity. Additionally, it demands that the crypto exchange submit to a jury trial and return all trading revenue, profits, fees and commissions obtained from customers in the United States.
The lawsuit also mentions Merit Peak, a trading subsidiary of Binance U.S. According to the CFTC, Zhao has direct control over Binance and every one of its affiliated businesses.
The CFTC has taken aggressive action against big businesses; it initiated legal proceedings against Bitfinex and Tether in the past, which had a significant impact on the cryptocurrency landscape. Some market analysts thus think the lawsuit may well decide the future of the international cryptocurrency exchange in the U.S.
What does this mean for the crypto market? By the end of last year, Binance controlled 92% of the market for all Bitcoin transactions. The exchange had a meager 45% of the market at the beginning of last year, but the elimination of trading fees in June and the demise of the FTX Exchange in November helped draw customers.
The exchange is a significant source of market liquidity. It is a popular trading and liquidity platform used by major market makers. Any disruption to Binance’s operations will affect the market’s ability to find liquidity sources and prices. The result of this would be negative for institutional traders and retail customers.
Binance has been balancing on a regulatory precipice for a while and has been the target of many compliance complaints from nations including the United Kingdom, Germany, Japan and Australia, among others. However, many experts believe that the CFTC lawsuit could hang over the exchange’s head and become a burden.
You can bet that startups such as BIT Mining Ltd. (NYSE: BTCM) will be following these lawsuits closely as the future of the industry, at least within the U.S., could be determined by how the matter is concluded in court.
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