Crypto Plummets as US Regulator Sues Binance, CEO for Violating Trading Regulations

As Binance faces the CFTC lawsuit, there's been some decline in the prices of popular cryptocurrencies.

Binance logo with paper and Bitcoin currencies
Photo by Kanchanara / Unsplash

World's top crypto trading spot, Binance, is in a law feud with the US derivatives market regulator, Commodity Futures Trading Commission (CFTC), for allegedly violating trading regulations.

The CFTC filed the lawsuit against Binance, its CEO, Changpeng Zhao (CZ), for operating what the commission termed an "illegal" exchange and "sham" compliance program. However, the price of various cryptocurrencies has dropped since the lawsuit started.

While responding to the lawsuit, CZ describes it as an "unexpected and disappointing civil complaint."

In one of its allegations, the CFTC alleges that despite Binance profiting from US citizens, it failed to register with the commission.

The CFTC says in its filing that "Despite Binance's solicitation of and reliance on customers located in the United States to generate revenue and provide liquidity for its various markets, Binance has never been registered with the CFTC in any capacity and has disregarded federal laws essential to the integrity and vitality of the U.S. financial markets, including laws that require the implementation of controls designed to prevent and detect money laundering and terrorism financing."

Binance was founded in Shangai, China, in 2017 by Changpeng Zhao but later shifted to Tokyo, Japan, due to the crypto ban in China. Binance's CEO has never given a definite address for its headquarters. In one of his statements, CZ says, "When we first started, we wanted to embrace the decentralized principles. No headquarters, work all around the world, no borders."

The commission also filed that the firm has failed to disclose its operating headquarters in an attempt to evade regulations.

"While Binance has maintained offices in numerous locations, including Singapore, Malta, Dubai, and Tokyo, at various times during the Relevant Period, Binance intentionally does not disclose the location of its executive offices. Instead, Zhao has stated that Binance's headquarters is wherever he is located at any point in time, reflecting a deliberate approach to attempt to avoid regulation."

However, CZ states in his response to the CFTC's allegations that "Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint."

Earlier in March this year, three US senators, Warren, Van Hollen, and Marshall, sent a bipartisan letter to Binance, demanding the crypto firm be transparent about its finances, risk management, and regulatory compliance methods in response to potential financial crime allegations. Patrick Hillmann, Binance's Chief Strategy Officer, disclosed that the firm responded and shared its response openly on the Binance blog earlier today.

Binance has been on several regulatory radars since 2021. It went under the investigation of the United States Department of Justice and the Internal Revenue Service (IRS) in 2021 on allegations of money laundering—Reuters reported.

The Guardian also reported that the exchange platform received a stop order from UK's Financial Conduct Authority (FCA) in June 2021 for fear of weak customer protection.

Late last year, Binance releasing its proof of reserve (PoR) quenched the fire to questions about its solvency and balance sheet. The firm pulled through vindicated despite allegations that its PoR contains some loopholes.

There Has Been a Crypto Fall-Out Since CFTC's Allegations

Binance is undoubtedly a crypto giant. You can imagine what its collapse will spell for the cryptocurrency ecosystem. While regulatory bodies keep clamping down on crypto, this new move threatens Binance's business in the US.

According to CoinMarketCap, as of writing, the price of Bitcoin has dropped by 4.55% since the allegation and 4.03% in the last 24 hours, plummeting from $27,979.07 to a 24-hour all-time low of $26,606.69. Ethereum also recorded a 2.75% 24-hourly loss in price value. BNB, the Binance native cryptocurrency, also fell by 6.13% in 24 hours, slipping to a 24-hour all-time low of $306.45 from its all-time high of $329.33.