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CFTC Sues, Says Compliance Efforts at Binance a Sham

The US has taken its strongest action against Binance Holdings and its chief executive officer, Changpeng Zhao, according to a court filing on Monday.

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Binance is the name that seems to crop up wherever you look in the cryptocurrency world.

The largest crypto exchange is a much bigger deal than FTX was and plays a more significant role in the cryptocurrency ecosystem.

Now, the Commodity Futures Trading Commission (CFTC) has filed a complaint against Binance, alleging that from at least July 2019 until the present, the largest crypto exchange "offered and executed commodity derivatives transactions on behalf of US persons" in violation of laws.

What are the Allegations?

CFTC chairman Rostin Behnam said in a statement that the exchange's compliance efforts "have been a sham."

Gretchen Lowe, chief counsel in the CFTC's enforcement division, said, "the defendant's own emails and chats reflect that Binance's compliance efforts have been a sham and Binance deliberately chose place profits over following the law."

"Defendants have disregarded applicable federal laws while fostering Binance’s US customer base because it has been profitable for them to do so," the top US derivatives regulator said in its complaint.

Behnam added, "For years, Binance knew they were violating CFTC rules, working actively to keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of US law."

After Knee-Jerk Reaction, Cryptos Recover

As Binance was sued, Bitcoin dropped to a 10-day low, and other tokens fell too.

After an initial plunge following Monday's federal court filing in Chicago by the CFTC, token values have since stabilised, with some even showing gains

It was business as usual for many seasoned traders as many in the crypto community see the US move as the latest attack on the industry from governments across the world, reported Bloomberg.

Mati Greenspan, founder and chief executive officer of Quantum Economics, told Bloomberg the price drop was "a bit of a knee-jerk reaction to the news."

He said that the pullback is not all that surprising given how far the token’s price has moved above its 50-day average.

"The USA is behaving worse towards crypto than China. At least China is straightforward enough to let their citizens and entrepreneurs know what’s allowed and what’s not," Greenspan said.

"Americans have to constantly guess where the moving goalposts are headed," he added.

That just goes to show that the broader theme of Asia is the likely winner as US regulatory scrutiny tightens.

Binance Undisputed King of the Crypto Industry

Binance is "too big to fail" in the digital asset exchange market. With FTX's demise in November, Binance's market share increased.

Binance sprang into the crypto scene in 2017 and quickly overtook larger rivals. It accounts for over 60% of all crypto spot and futures trading.

According to Kaiko, a digital asset analytics company, the exchange has accounted for over 70% of all trading volumes throughout the spot market so far this month, compared to just 6% for Coinbase Global Inc.

That kind of market dominance would put Apple and Samsung Electronics to shame, just the two examples to reiterate the status of Binance.  

Binance has expanded its already dominant share of the crypto spot market across tokens since FTX collapsed

Since the company has no headquarters in the United States, the firm claims that the global exchange is not subject to US jurisdiction.

For some who have been complaining about the company for years, including claims of corporate mismanagement, the filing of these charges may seem like long overdue retribution.

But true believers still insist that crypto should return to the margins to fulfil its libertarian goal, while regulators insist that the business has to be legitimised.

Binance has been under scrutiny from several US agencies, including the CFTC.

Bloomberg News reported that the Internal Revenue Service (IRS) and federal prosecutors have been examining Binance's compliance with anti-money laundering obligations.

The SEC has been investigating to determine if the exchange has enabled trading in unregistered securities.

Binance's various connections to traditional banking may now be in jeopardy, even as some crypto aficionados may brush off the allegations.

Institutions that have dabbled with crypto will have to assess the costs of the world's largest exchange against the liquidity it provides.

Binance's Story So Far

First established in Shanghai in 2017, Binance has expanded to Tokyo and then Malta.

Binance has not disclosed the location of its primary exchange, even though its parent company is headquartered in the Cayman Islands.

The platform provides various services, including spot trading, derivatives trading, NFT trading, crypto lending services, and asset management for digital currencies.

According to a 2022 evaluation published on the company's website, it serves 128 million active users and employs more than 7,500 people worldwide.

In addition, with over 10 million Twitter followers, the brand has a considerable online following.

Binance's Murky Finances

Details on Binance's financial situation remain murky. Revenue, profits, and cash on hand are not made public because the firm is privately held.

According to market research, Binance has yet to go to investors for funding since 2018. Hence it has not been required to disclose its financial status to outside parties.

Now, the US regulator's case is part of a larger, more publicised effort to crack down on the industry as a whole.

US prosecutors and civil investigators have scrutinised crypto businesses for years due to allegations of unlawful offers and noncompliance with regulations intended to curb criminality.

Nonetheless, the rate at which such government actions are taken has increased recently.

Funding & Expansion History

Binance says its VC arm has made over 200 investments since 2018.

According to PitchBook, the company has invested about US$2 billion across more than 150 acquisitions, with significant data sites like CoinMarketCap among them.

In 2022, Binance expanded beyond crypto by spending US$500 million on Tesla CEO Elon Musk's attempt to take over Twitter.

The Argentine national football team and the Italian football team Lazio are both sponsored by Binance, further establishing the brand's prominence in sports.

In 2021, it also sponsored the African Cup of Nations as a title sponsor.

In addition, to increase awareness of its NFTs, Binance partnered with Cristiano Ronaldo, a Portuguese football player, in 2022.

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