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.
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.