US court approves settlement against Binance, firm to pay $2.7B to CFTC

Former Binance CEO Changpeng “CZ” Zhao has been ordered to pay $150 million, while Binance will pay $2.7 billion to conclude the CFTC enforcement action.

A United States court has entered an order against crypto exchange Binance and its former CEO, Changpeng “CZ” Zhao, that will see Binance pay $2.7 billion and CZ pay $150 million to the Commodity Futures Trading Commission (CFTC).

In a Dec. 18 statement, the CFTC announced that the U.S. District Court for the Northern District of Illinois had approved the previously announced settlement and concluded the enforcement action first issued by the CFTC in November. 

“The court finds Zhao and Binance violated the Commodity Exchange Act (CEA) and CFTC regulations, imposes a $150 million civil monetary penalty personally against Zhao, and requires Binance to disgorge $1.35 billion of ill-gotten transaction fees and pay a $1.35 billion penalty to the CFTC,” wrote the CFTC in a statement. 

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Tax services are getting pushy to have crypto declared: Law Decoded, Nov. 27–Dec. 4

Spain and Brazil are chasing cryptocurrency stored abroad, while the U.K. wants taxes paid for crypto assets that weren’t previously declared.

Last week, His Majesty’s Revenue and Customs (HMRC) presented an unpleasant Christmas surprise to hodlers in the United Kingdom, demanding they declare any crypto holdings they failed to report in the last four, six or even 20 years. The disclosure must include “exchange tokens,” such as Bitcoin (BTC), as well as any nonfungible tokens (NFTs) and “utility tokens.”

Less harsh in its demands, the Spanish Tax Administration Agency has also reminded its citizens about their obligations to declare crypto, even if they store it abroad.

Brazil will also proceed to tax its citizens’ foreign crypto holdings via a bill already passed in the Chamber of Deputies and expected to be approved by President Luiz Inácio Lula da Silva. The change makes those funds taxable at the same rate as domestic funds.

The SEC is still digging into Binance.US

The United States Securities and Exchange Commission is still looking for evidence that Binance.US had a backdoor to potentially control customer assets similarly to FTX. Anti-Money Laundering laws as part of a $4.3 billion settlement with the U.S.

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Courts will provide ‘good guidance’ for crypto — CFTC commissioner

Kristin Johnson proposed several potential paths for handling digital assets in the United States — through Congress, having private companies address governance and the courts.

Kristin Johnson of the United States Commodity Futures Trading Commission (CFTC) said there are many ways of handling cryptocurrencies in the country, but legislating through courts could provide a solid, if slow, path.

Speaking at the Blockchain Association’s Policy Summit in Washington, D.C. 30, Johnson said the “best outcome” for corporate governance of crypto firms would be to have companies implement their own plans. She cited policymakers introducing reporting requirements for Binance as part of a $4.3 billion settlement with the crypto exchange.

According to the CFTC commissioner, Congress could also step in and provide clarification as to the definition of a security — one of the key points behind the U.S.

“If we rely on the courts we will get good guidance, but it won’t come quickly,” said Johnson.

Related: ‘Premier’ crypto cop CFTC reveals record-setting digital asset enforcement in 2023

Though the CFTC and SEC have both, at times, settled lawsuits with different crypto firms rather than going to trial, many companies have asked for their day in court.

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CFTC chair says Binance intentionally broke rules concerning futures, commodities

The head of the CFTC, Rostin Behnam, recently spoke out against Binance and its leadership at a public-facing event held at Princeton University.

Rostin Behnam, Chairman of the Commodity Futures Trading Commission (CFTC), recently spoke out about the allegations levied against Binance, claiming that the beleaguered cryptocurrency exchange’s leadership knowingly operated outside of U.S. laws governing the exchange of commodities and futures. 

Speaking at a fireside chat that took place at the DeCenter Spring Conference at Princeton University on April 14, Bloomberg reports that Behnam told those in attendance that Binance leaders had intentionally flouted the rules concerning operations, including knowingly allowing U.S. citizens to participate on the exchange through the use of virtual private networks (VPNs) and other obfuscation tools.

“These are not unsophisticated individuals,” Behnam said at the event. “They are starting large companies and offering futures contracts and derivatives to U.S. customers.” The CFTC head later added “If you are going to offer futures contracts in the U.S., there is a clear understanding that you are registered with the CFTC and comply by the law.”

The comments stem from the CFTC’s lawsuit against Binance and its CEO Changpeng “CZ” Zhao for alleged trading violations. Per a report from Cointelegraph, “The CFTC is pressing seven counts for executing unregistered futures transactions, providing illegal commodities options, failure to register as a Futures Commission Merchant, Designated Contract Market or Swap Execution Facility, failure to supervise diligently or implement AML/KYC measures and law evasion.”

Related: Binance CEO CZ: Regulators need deep understanding of crypto for proper rules

The nuts and bolts of the CFTC’s suit against Binance — the exchange also faces legal action from the IRS and federal prosecutors — relies on supposed evidence that Binance and CZ continued onboarding U.S. customers despite a policy prohibiting such actions and that the company knowingly engaged in illegal futures trading, allegedly running the business afoul of U.S. anti-money-laundering laws.

It’s unclear at this time why the CFTC head would participate in what appears to be flippant public discussion of ongoing investigations. Binance, for its part, continues to assert its participation in good-faith efforts at global compliance.

CFTC allegations and $1 billion lawsuit for Binance: Law Decoded, March 27–April 3

Five days after the CFTC move, a new $1 billion lawsuit was filed against the crypto exchange by the law firm representing three American investors.

Last week brought troubling news for the world’s largest crypto exchange, Binance. The United States Commodity Futures Trading Commission accused the company and its CEO, Changpeng “CZ” Zhao, of trading violations. According to the lawsuit filed by the CFTC, Binance has conducted transactions for U.S. customers without proper registration since at least 2019. 

According to the CFTC, Binance obscured the location of its executive offices, using 300 “house accounts.” The Commission has also accused the platform of keeping the information a “top secret,” and alleged that the exchange refused to respond to commission-issued investigative subpoenas seeking information on its trading activity.

A day later, CZ rejected all the allegations, arguing that Binance “does not trade for profit or ‘manipulate’ the market under any circumstances.” He argued that while Binance “trades” in some situations, this is mainly to convert crypto revenue to cover expenses in fiat or other cryptocurrencies. Zhao called the recent CFTC filing both “unexpected and disappointing.”

The complaint has already triggered several major reactions for Binance. A federal judge has temporarily halted its deal to purchase Voyager Digital for $1 billion after the U.S. government requested an emergency stay. And five days after the CFTC move, a new $1 billion lawsuit was filed against the crypto exchange by the law firm representing three American investors. The plaintiffs claim that Binance was involved in trading unregistered securities and paid influencers for the unlawful promotion of the services.

MakerDAO passes new ‘constitution’ to formalize governance process

MakerDAO, the decentralized autonomous organization that governs the protocol that issues the Dai (DAI) stablecoin, has passed a new proposed “constitution” to formalize governance processes and help prevent hostile actors from taking over the protocol, according to the official forum page for the proposal. 

The governing document creates several categories of participants with different powers and responsibilities. For example, constitutional conservers (CCs) have the job of “facilitating and protecting the Maker Governance process” by ensuring that other participants follow the constitution. CCs can become constitutional voter committee members or constitutional delegates.

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Beaxy exchange shutters after SEC presses multiple charges against founder

Beaxy suspended operations on March 28 “due to the uncertain regulatory environment surrounding our business,” according to the cryptocurrency exchange’s blog. The suspension came a day before the United States Securities and Exchange Commission (SEC) announced it was charging Beaxy and its executives with failing to register as a national securities exchange, broker and clearing agency. The SEC also said it was charging Beaxy founder Artak Hamazaspyan and Beaxy Digital — a company he controls — with raising $8 million through an unregistered offering of the Beaxy token (BXY), and the misappropriation by Hamazaspyan of $900,000 of investor funds for personal uses.

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Terra co-founder Daniel Shin’s arrest denied by the court

A local court in South Korea denied the prosecutor’s request to issue an arrest warrant for Terraform Labs co-founder Shin Hyun-Seong, also known as Daniel Shin. This was the second attempt by South Korean authorities to reign in Shin following the recent arrest of Do Kwon — Terra’s other co-founder. The Seoul Southern District Court denied the request, citing unconfirmed allegations and the unlikeliness of Shin being a flight risk or destroying evidence. Shin currently faces multiple fraud charges, specifically concerning allegedly hiding risks associated with investing in Terra’s in-house tokens.

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Unwinding the hyperbole: Are US-based crypto firms really being ‘choked’?

Are U.S. agencies conspiring to “un-bank” crypto and put Binance out of business?

An extended market price drawdown (crypto winter) throughout 2022 has tested the crypto industry’s mettle, and more recently, a crackdown by United States regulators on some prominent entities like Coinbase, Binance and Kraken has further shaken the sector.

So maybe it’s only natural for the industry to employ colorful, vivid language to describe what’s been happening. There’s a notion making the rounds that the U.S. government is out to “un-bank” or “de-platform” the crypto sector. This process even has a name: “Operation Choke Point 2.0.”

U.S. President Joe Biden’s administration is using the financial rails “as an extra-judicial political cudgel” to crack down on the crypto industry, wrote Castle Island Ventures’ Nic Carter, who described it as a coordinated, multi-agency effort to discourage banks from dealing with crypto firms.

According to Carter, this alleged strategy follows a template used earlier by the Obama and Trump administrations. In 2018, under federal pressure, “Bank of America and Citigroup de-platformed firearms companies, and BoA began to report client firearm purchases to the federal government,” he wrote.

In late March, Quantum Economics’ Mati Greenspan told Cointelegraph that this so-called un-banking could “already be underway,” particularly in light of the recent collapses of crypto-friendly banks like Silvergate, Silicon Valley Bank and Signature Bank. In Greenspan’s view:

“Crypto is seen as a ‘threat’ to the U.S. dollar’s dominance in global trade — a significant and long-standing benefit to the U.S.”

In that same article, attorney Michael Bacina warned that the “regulation by enforcement model” being practiced in the U.S. would simply “drive crypto-asset innovation offshore,” and on April 1, the CEO of a French digital assets data provider told The Wall Street Journal that U.S. agency actions could “shift the center of gravity of crypto assets trading and investments” toward Hong Kong.

A coordinated effort by regulators?

It’s time to step back and ask: Are these fears justified? It is sometimes difficult to separate the truth from the tight knot of hyperbole in the crypto space, but are U.S. regulators really seeking to “de-platform” crypto?

“I don’t think there’s necessarily a concerted or intentional effort by regulators to ‘de-platform’ crypto,” David Shargel, a partner at the Bracewell law firm, told Cointelegraph. “But, the crypto ecosystem has moved from a niche product to the mainstream, and regulators are playing catchup.” Regulators also recognize that crypto isn’t going anywhere, he added.

Does the suggestion that cryptocurrencies represent a threat to the U.S. dollar’s dominance in global trade provide a further incentive to ban them?

Recent: The secret of pitching to male VCs: Female crypto founders blast off

Crypto may indeed have the potential to disrupt global trade flows — at least to some minor degree — but the dollar is more threatened by other geopolitical factors “such as the U.S.’ own waning influence on the global stage, the rise of China, and Western sanctions on Russia,” Zhong Yang Chan, head of research at CoinGecko, told Cointelegraph.

Recently, International Monetary Fund experts said, “Crypto assets, including stablecoins, are not yet risks to the global financial system.”

“The general consensus seems to be that the dollar remains well entrenched as the world’s dominant currency, and that the use of cryptocurrency, standing alone, won’t change that — barring some other major political or economic shift,” Bracewell’s Shargel added.

“A perfect storm brewing”

Still, the administration in Washington may be getting nervous about the U.S. dollar, said John Deaton, a managing partner at Deaton Law Firm, who also runs the CryptoLaw website, and has supported Ripple in its litigation with the U.S. Securities and Exchange Commission (SEC). Speaking to Cointelegraph, he said there is a convergence of issues at play here:

“China and Russia have agreed to trade oil and gas in the Chinese yuan, not U.S. dollars. Kenya’s president has told his people to dump their USD. Saudi Arabia may agree to trade oil in non-USD denominations.”

At the same time, the U.S. government needs to print more money, adding to an already high inflationary environment, leading people to look at gold, silver and Bitcoin (BTC) as alternatives. “The fear isn’t just about crypto — it’s that a perfect storm is brewing against the U.S. dollar,” Deaton said.

Deaton deems the Operation Chokepoint 2.0 scenario plausible, but he also has a nuanced view of crypto regulation and U.S. regulators. “If we are being honest, the crypto industry has caused itself quite a few self-inflicted wounds, and the industry is to blame for giving itself a black eye when it comes to public perception.” Many in the crypto industry, like himself, “don’t oppose regulation; we seek it,” he said, adding:

“We just want smart, tailored legislation that protects investors from fraud but provides entrepreneurs with clear rules and guidance, and fosters innovation.”

Dealing Binance a ‘fatal blow’?

Deaton was asked about another suggestion heard last week that the U.S. Commodity Futures Trading Commission (CFTC) is “attempting to strike a fatal blow to Binance” with its recently announced lawsuit against the world’s largest cryptocurrency exchange. Is that really the commission’s end game?

“If you look at the CFTC’s case against Binance in a vacuum, I would agree that it is hyperbole to suggest that it is a regulatory attempt to cause a death blow to Binance,” said Deaton. “Binance, like many other entities that grew very fast and very quickly, may have cut corners. If so, they will pay a big fine and move on.”

The problem is that the Binance suit comes after Coinbase received a Wells notice from the SEC, and the government’s seizure of Signature Bank, with reports that the Federal Deposit Insurance Corporation wanted all crypto depositors out before it would allow a sale of that bank. “When you add those things together, it appears like coordination, not coincidence,” Deaton told Cointelegraph.

“Hyperbole seems to drive the crypto news cycle,” commented Bracewell’s Shargel when asked about the industry’s response to the recent CFTC action against Binance. “The CFTC’s lawsuit is certainly serious, but it’s probably too soon to call it a fatal blow.”

In its complaint, the CFTC asked the court to impose several penalties, including a permanent bar on Binance and its CEO, Changpeng Zhao, from the commodities markets. “But, for now, the complaint is just a complaint, and the outcome of the case — whether through settlement or otherwise — remains to be seen,” said Shargel.

The view from abroad

Viewed from overseas, recent U.S. regulatory actions are sometimes difficult to fathom. Syren Johnstone, executive director of the compliance and regulation program at the University of Hong Kong — and author of the book Rethinking the Regulation of Cryptoassets — has been disappointed with the U.S. SEC’s seeming attempt to label everything a security.

“None of the regulatory approaches I’m seeing globally truly promote innovation,” Johnstone told Cointelegraph. “Dumping everything crypto into a financial markets context is straight-jacketing the greater potential for the technology.”

Other countries are closely following recent U.S. regulatory actions, though not necessarily approvingly. “Overseas regulators are looking at the U.S. approach to crypto assets as a situation they want to avoid,” Johnstone noted.

“Globally, there are concerted efforts to bring greater regulatory oversight to crypto,” added CoinGecko’s Chan. “However, each country has its own legal system, and different countries may take different paths toward regulating crypto activities. This may include placing crypto under the ambit of securities, but there may also be other possible paths such as classifying crypto as payments instruments, or commodities.”

Time to cool down the hype?

If the industry continues to use the language of persecution, could it potentially hurt — rather than support — crypto adoption? Shargel commented:

“I’m not sure if hyperbole serves the wider cause of crypto or blockchain adoption, but it might help to coalesce the crypto community, especially as regulators seem to be expanding their enforcement dragnet.”

“I do not believe it is hyperbole to say the U.S. government has initiated a war or campaign against crypto,” opined Deaton. “Operation Chokepoint 2.0, which Nic Carter warned people about, has been proven accurate. Some said he was a conspiracy theorist or engaging in hyperbole. He wasn’t either. The regulators protect the status quo, which means they protect the incumbents in power from the disrupters who are gaining traction or market share. That’s what we are witnessing.”

A downbeat President’s report

Elsewhere, many in the crypto community were disappointed by the Biden administration’s recent economic report, which devoted 35 of its 507 pages to digital assets. Dan Reecer, chief growth officer at decentralized finance platform Acala Network, called it “an attack on crypto,” adding that it was released “just days after Operation Chokepoint 2.0 was executed on crypto-friendly banks.”

Admittedly, the report wasn’t exactly a ringing endorsement of cryptocurrencies. “Crypto assets currently do not offer widespread economic benefits. They are largely speculative investment vehicles and are not an effective alternative to fiat currency,” it declared.

However, there is nothing in the report that describes crypto as threatening U.S. dollar dominance in global trade or about a pressing need to “de-platform” crypto entities.

On the contrary, the report acknowledged that cryptocurrencies “underlying technology may still find productive uses in the future as companies and governments continue to experiment with DLT [distributed ledger technology].” It conceded that “some crypto assets appear to be here to stay.”

The eighth chapter of the report, which focuses on digital assets, is primarily a rehash of things that people working in the field have known for years — how Bitcoin is mined, the risks of algorithmic stablecoins, the crypto sector’s role in ransomware, its volatility and its unsuitability as a medium of exchange, etc. But one major shortcoming is that it fails to recognize the technology’s future possibilities.

Recent: Stress test? What Biden’s bank bailout means for stablecoins

All in all, U.S. regulators face a balancing act. The government has every right to crack down on bad actors, but it shouldn’t kill innovation in the process. The SEC can’t expect to regulate everything in the crypto space — not everything is a financial security.

For instance, if the agency declared Ether (ETH) a security — because the Ethereum network uses ETH in its staking consensus mechanism — then that would rightly be considered regulatory overreach.

“In the aftermath of FTX, it’s no surprise that regulators are inclined to act,” Chris Perkins, president of crypto venture firm CoinFund, and a member of the CFTC’s Global Market’s Advisory Committee, told Cointelegraph. “And, they should be empowered to pursue enforcement actions to prevent other ‘FTXs.’ But, it’s important that we don’t throw the baby out with the bathwater.”

CZ, Binance, influencers face $1B lawsuit for unregistered securities promo

While three American citizens brought the case, the lawsuit alleges that “millions” of people could be eligible for damages.

Five days after Binance and its CEO Changpeng “CZ” Zhao were sued by the United States Commodity Futures Trading Commission (CFTC) for alleged trading violations, a new $1 billion lawsuit was filed against the crypto exchange, CZ and three crypto influencers for promoting unregistered securities.

On March 31, the Moscowitz Law Firm and Boies Schiller Flexner filed the $1 billion lawsuit in the Southern District of Florida, claiming Binance’s involvement in trading unregistered securities and paying influencers for the unlawful promotion of such services, according to Fortune. While explaining the charges, the filing read:

“This is a classic example of a centralized exchange, which is promoting the sale of an unregistered security.”

In a previous lawsuit against Voyager, the law firm alleged that influencers promoting “unregistered securities” are liable for customer losses. Based on similar claims, Binance and the influencers — NBA Miami Heat star Jimmy Butler, and YouTubers Graham Stephan and Ben Armstrong (BitBoy Crypto) — are challenged with paying $1 billion for the damages caused to investors.

“We’ve been investigating these same unregistered security issues against Binance for over a year,” added the lawsuit. Promoters and the exchanges facilitating trades of such assets “would be liable” for the customer losses. In addition, the suit claims that investors have no obligation to prove they were influenced by the advertisements.

While three American citizens brought the case, the lawsuit alleges that “millions” of people could be eligible for damages. The law firm also plans to rope in more Binance influencers to the suit in future filings.

Related: Binance vs. CFTC: Latest court battle could alter crypto landscape in US

Meanwhile, CZ and other top Binance executives have been concealing the crypto exchange’s ties to China, claims a Financial Times report.

“We no longer publish our office addresses … people in China can directly say that our office is not in China,” Zhao had reportedly said in a company message group in November 2017.

However, speaking to Cointelegraph, Binance confirmed that the company “does not operate in China nor do we have any technology, including servers or data, based in China,” adding:

“While we did have a customer service call center based in China to service global Mandarin speakers, those employees who wished to remain with the company were offered relocation assistance starting in 2021.”

According to Binance, its 8,000 full-time employees live across Europe, the Americas, the Middle East, Africa and the Asia-Pacific.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Binance vs. CFTC: Latest court battle could alter crypto landscape in US

The CFTC lawsuit against Binance could prove to be the beginning of the end for the crypto exchange in the United States, according to many market pundits.

Regulatory trouble is nothing new for Binance, and on many occasions, in the past, it has managed to overcome or bypass such roadblocks and eventually work with regulators. 

However, when it comes to the United States, the exchange has found itself in the cross-hairs of multiple agencies.

A number of United States financial regulators have ongoing investigations against the crypto exchange. Some of these investigations date back to 2018, and now, one of the primary derivatives market regulators in the U.S. has filed a lawsuit in conjunction with its investigation that started in early 2021.

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

The lawsuit alleges that Binance violated U.S. derivatives laws by offering its derivative trading services to U.S. customers without registering with appropriate market regulators. The CFTC accused Binance of prioritizing commercial success over regulatory compliance.

The lawsuit also made headlines because the CFTC has not only levied charges against the exchange but also against Zhao and Lim. The U.S. regulator has also accused Binance and its CEO of seven violations of the Commodities Exchange Act and controlled foreign company rules.

David Waugh, managing editor of the Daily Economy at the American Institute for Economic Research, told Cointelegraph that the CFTC lawsuit isn’t surprising considering the U.S. government’s overarching approach toward cryptocurrency enterprises — regulators seem to be employing every conceivable measure to curb the industry’s expansion.

“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 actively gone after large companies, having previously opened regulatory enforcement actions against Tether and Bitfinex, which resulted in major shifts in the crypto landscape. The lawsuit against Binance looks to be no different.

Recent: The secret of pitching to male VCs: Female crypto founders blast off

The CFTC has demanded a ban on Binance, Zhao, Lim and all affiliates from trading on registered entities, holding any commodity interest, registering or exempting with CFTC or acting as a principal, officer or employee of a registered entity. It has also demanded that Binance pay back the trading profits, revenues, commissions and fees derived from U.S. customers, as well as pay civil penalties assessed by the court and stand a jury trial on this matter.

Binance’s fate in the U.S. looks uncertain at present

The CFTC lawsuit has amassed evidence, including internal chat records of Zhao with Binance’s executives. Some market pundits believe it could very well seal the fate of the global crypto exchange in the United States.

Mark Fidelman, the founder of SmartBlocks, told Cointelegraph that the lawsuit has the potential to undo years of progress made by Binance’s sister firm in the U.S., Binance.US, which the global exchange has claimed functions as an independent entity. Fidelman said, “Charges against Binance are stiff, and the penalties could be business-ending.”

In addition to the regulatory infractions, the lawsuit specifically mentions Binance.US trading subsidiaries Merit Peak as well. The CFTC alleged that Zhao directly controls Binance and all of its connected companies.

An excerpt from the CFTC lawsuit. Source: CFTC

The lawsuit also specifically ties in Trust Wallet, Binance Labs (due to U.S. exposure) and many Binance employees with U.S. exposure, including exchange-employed community builders called “Binance Angels” as grounds for a U.S. filing.

The most daunting accusation could be that Binance had nearly 300 accounts directly or indirectly linked to Zhao that traded against customers.

An excerpt from the CFTC lawsuit. Source: CFTC

CFTC’s lawsuits against crypto companies have been settled with hefty fines and orders to cease operations in the past. Terrence Yang, a Harvard Law JD and the managing director of Bitcoin-focused firm Swan Bitcoin, told Cointelegraph that it seems unlikely that Binance.US will continue to operate much longer, depending on what the CFTC proves 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.”

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

The firm did release a public response to the lawsuit, in which Zhao said that the complaint appears to contain an incomplete recitation of the facts, and they “do not agree with the characterization of many of the issues alleged in the complaint.”

Many see the lawsuit as critical for Binance’s future in the U.S., with some further classifying it as a political move among regulators.

Adam Cochran, a decentralized finance developer and angel investor, in a Twitter thread explained the end scenario of the lawsuit. He said that if Binance and other mentioned executives fail to engage with U.S. courts or don’t appear to defend themselves in a trial, then the CFTC would win. However, if they engage, “then the discovery process will be opening all their books internationally to U.S. regulators from all entities including those personally owned by Zhao to churn up other issues.”

Possible effects on the crypto market

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

At the end of 2022, Binance had a 92% market share of the total volume of Bitcoin (BTC) transactions. The exchange’s market share was a mere 45% at the beginning of the last year, but the removal of trading fees in June and the downfall of rival exchange FTX in November helped it attract consumers.

Binance is a significant market liquidity source. Key market makers use Binance to execute trades and obtain liquidity. The market’s capacity to find prices and sources of liquidity will be impacted by any disruption to Binance’s operations. Retail customers and institutional traders would ultimately suffer as a result of this.

While the majority of these ongoing investigations and CFTC allegations are mere accusations at this point and haven’t been proven in court, Jason Allegrante, chief legal and compliance officer at digital asset bank FireBlocks, told Cointelegraph that the outcome of the CFTC lawsuit could accelerate the trend of businesses exiting the U.S. market.

“Depending on how Binance is ultimately impacted, this may send shockwaves through global digital asset markets. For better or worse, Binance is now akin to a critical financial market infrastructure given the volume of global trades that pass through it. An interruption of service at Binance will result in a serious impairment of liquidity sourcing in the marketplace,” he explained.

He added that, in the long run, alternative sources of liquidity will emerge in the form of new entrants, including traditional financial market participants, such as Nasdaq, which just announced plans to enter digital asset markets.

Recent: How a TikTok ban in the US could affect the crypto industry

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

He stated, “Now, you have a different exchange that’s received an enforcement complaint from the commodities regulator for basically being in the same business. For crypto, this is the worst of both worlds — one company having an SEC allegation, Coinbase, and one having a CFTC allegation, Binance.”

Binance has been walking on a regulatory tightrope around the globe, and over the years, it has received numerous compliance complaints from countries, such as the United Kingdom, Japan, Germany, Australia and many more. However, the CFTC lawsuit, according to many experts, could become an albatross around the exchange’s neck.

National Futures Association adds rules for members handling digital assets

The CFTC-linked self-regulatory organization has disclosure rules for members engaging in activities with BTC and ETH, and standards of conduct are now being added.

The National Futures Association (NFA) — the United States self-regulatory organization for derivatives markets — has issued a new compliance rule addressing members’ conduct. The new rule complements requirements issued in 2018.

The NFA has “well over 100” members engaging in activities with digital asset commodities, but no way to address fraud or misconduct committed by those members, the organization explained to the secretary of the Commodity Futures Trading Commission (CFTC) Christopher Kirkpatrick in a Feb. 28 letter as it submitted the proposed new rule for approval.

The new rule is modeled on the NFA’s antifraud rules for exchange-traded futures, swaps transactions and retail foreign exchange. The NFA is the only registered self-regulatory organization with delegated authority from the CFTC, giving it an analogous status to the Financial Industry Regulatory Authority with the Securities and Exchange Commission.

Related: Hoskinson pitches software-enabled crypto self-regulation to Congress

Currently, the NFA only imposes disclosure requirements on its members engaged in spot commodity activities with digital assets, which are detailed in a single document. When the new rule comes into effect on May 31, members will be subject to guidance on fraud, trade principles and employee supervision. The rule applies only to Bitcoin (BTC) and Ether (ETH), as they alone “have related commodity interests certified by a registered entity for listing under Part 40 of CFTC Regulations.”

CFTC commissioner Caroline Pham released a statement praising the new rule:

“This is a clear example of using existing authority to ensure that there are customer protections in place, because registration with the NFA requires that firms and individuals comply with NFA rules.”

The NFA “can modify this rule in the future to include other digital asset commodities” besides BTC and ETH, Pham added. She noted that NFA rules on foreign exchange preceded the CFTC’s authority granted by Congress to regulate that market by five years. “I believe it is common sense to start with what we have and what works in order to extend our regulatory framework over spot digital asset commodity markets,” she added.

Magazine: All rise for the robot judge: AI and blockchain could transform the courtroom

Fair crypto laws ‘possible’ in the US but needs ‘a lot of work’ — Crypto Council adviser

Crypto Council for Innovation adviser Sean Lee said more education is needed for policymakers and financial regulators.

There are still industry executives that remain hopeful the United States will develop laws to treat crypto fairly; however, an adviser to the Crypto Council for Innovation warns it will take “a lot of work.”

Speaking to Cointelegraph on March 29 at the World of Web3 (WOW) Summit in Hong Kong, Crypto Council for Innovation adviser and co-founder of Odsy Network, Sean Lee, said that fair treatment of the crypto industry is possible in the United States.

He commented that financial reform was addressed following the 2008 financial crisis so there is no reason the same cannot be applied to crypto.

“It is possible, it will take a lot of work […] and usually implementation comes after a massive crisis, which we have right now.”

The comments come in the wake of a massive crypto crackdown by U.S. financial regulators that some industry commentators have labeled a “war on crypto.”

CCI Senior APAC Adviser Sean Lee at the WOW summit. Source: Twitter

The FTX meltdown in November appears to have given regulators and anti-crypto lawmakers plenty of ammunition to bring the hammer down on the fledgling crypto industry. However, Lee pointed out that FTX is not crypto, it was just a centralized trading venue, adding:

“If you don’t properly regulate centralized entities, well, we’ve seen back in history many times about what can go wrong.”

He said that there was a lot of education that needed to be done, and this is what organizations such as the Crypto Council for Innovation are trying to achieve.

The council is striving for dialogue with politicians to help them understand where things are and “help them also understand what other jurisdictions are thinking about,” he added.

The assistance can be provided to “help craft more progressive policies” that allow for both the communities and companies to understand the landscape much better.

Related: 7 details in the CFTC lawsuit against Binance you may have missed

Sheila Warren, CEO of the Crypto Council for Innovation, made similar arguments in a statement on the recent CFTC Binance lawsuit, stating that it “will hopefully mean the end of people coming into the crypto space trying to take advantage of the lack of regulatory clarity in the United States.”

She also said that the CFTC’s classification of certain cryptos as commodities was “a powerful shot across the bow of the SEC.”

In a related development, SEC Chair Gary Gensler this week requested a larger budget to tackle what he termed the “Wild West” — crypto markets. Therefore, it remains unlikely that Uncle Sam’s war on crypto will be over any time soon.