Cryptocurrency exchange Binance and CEO Changpeng Zhao were caught off-guard by a civil lawsuit decision by the U.S. Commodity Futures Trading Commission (CFTC) on Wednesday.
After avoiding the establishment of a permanent headquarters for many years, Binance has worked with regulators in the United States and other countries and regions to operate in a compliant manner in the more than 100 countries and territories it serves. I’ve been having conversations.
Binance Chief Strategy Officer Patrick Hillman told The Wall Street Journal last month that Binance has successfully filled a “void” in its compliance strategy as a result of its rapid growth. I just took it. Binance has been in dialogue with regulators to ensure it can continue operating.
Unexpected lawsuit
The CFTC lawsuit came as a surprise in some ways. The Department of Justice, the Securities and Exchange Commission (SEC), and even the Internal Revenue Service (IRS) were also rumored to be preparing lawsuits on various issues. When U.S. authorities imposed sanctions on Russian cryptocurrency exchange Bitzlato, Binance was cited as a major counterparty.
It is surprising that the CFTC was the first U.S. regulator to file a lawsuit against Binance. Crypto assets such as Ethereum (ETH) have further complicated the commodity-versus-securities confusion.
In its 74-page complaint, the CFTC alleges that Binance was not only providing services to U.S. customers without applying for proper licenses, but was also actively encouraging customers to circumvent compliance rules such as Know Your Customer (KYC). criticized for being supportive.
Binance Executives Recognize Their Geo-Fencing Tools Were Inadequate, Encouraging “Whales” To Hide U.S. IP Addresses and even prepared a semi-official (but confidential) procedure to gain access to the exchange.
Impact on crypto assets
The lawsuit is clearly against Binance and comes at a time of uncertainty for the entire cryptocurrency industry. Experts believe the lawsuit could be catastrophic for Binance, or hurt much of its revenue.
Bloomberg columnist Matt Levine, for example, said the lawsuit was not aimed at consumer safety, but rather to prevent Binance from profiting from US hedge funds. are doing.
Zhao could be banned from running Binance, which he founded in 2017, and trading crypto assets.
If Zhao, who is believed to be one of the richest people in the world, starts selling crypto assets, it could have a negative impact on crypto asset prices. Blocking Binance from the derivatives market could be detrimental to Bitcoin’s liquidity and price.
If the CFTC’s 2018 lawsuit against BitMEX is any guide, the collapse of the largest derivatives market could be worse than expected.
deterioration of image
More likely than not, this lawsuit will do just that to the reputation of crypto assets. It appears that there is at least one informant inside Binance who passed on internal communications and messages that were against Binance to the CFTC.
These messages make it clear that Binance, led by Zhao, is a company that sacrifices rule compliance for growth.
Large traders were favored by faster settlements and lower fees, and were given priority over individual investors. If the CFTC is correct, Binance was trading against its customers. This seems to be a trend on cryptocurrency exchanges.
However, it is important to note that the CFTC’s allegations are still just allegations. There is a tendency to take what the police and regulators say, regardless of whether it is crypto-related or not. U.S. regulators are unlikely to sue based on false evidence, but the information is certainly biased.
US government’s hardline stance
In the case of Bitzlato, U.S. regulators determined, without evidence, that all of its trading volume was related to illegal activity. In the case of BitMEX, regulators suggested the exchange helped terrorists transfer money, but never proved it.
As Hillman admitted, Binance made serious mistakes and ran shady businesses. But the most egregious accusations are still unproven and perhaps justifiable.
The U.S. government has taken a tough stance on cryptocurrencies and appears to be working together to keep them out of the broader economy through restrictions on bank transactions and punitive lawsuits. If so, it should come as no surprise that they are targeting exchanges that have endured bear markets and continue to grow.
There is no doubt that Binance’s attitude of disregarding conflicts of interest and regulations is unacceptable. The communications of Mr. Zhao and other executives about fraudulent and illegal activities on Binance disclosed in the legal documents are ridiculously inappropriate.
However, this lawsuit, while negative for Binance, does not destroy the blockchain.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda | Image: Binance CEO Changpong Zhao (CoinDesk) ｜ Original: How Bad Is the Binance Suit?


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