- The US Commodities Futures Trading Commission (CFTC) sues Binance over its crypto derivatives products.
- The lawsuit heightens regulatory pressure in the US as far as crypto is concerned.
On Monday (March 27), the US CFTC filed a lawsuit against Binance, the world’s largest cryptocurrency exchange, for alleged violations of commodities and derivatives laws.
Yankun Guo, a partner at Ice Miller – a Chicago law firm, told Blockworks that Binance is being sued for derivative activities of certain tokens. He opined that the underlying assets could be a security, but their associated derivative activities fall under CTFC’s mandate.
More US regulatory pressure on the crypto industry
The lawsuit comes a few days after Coinbase received a Wells Notice – a letter informing the respondent of a potential lawsuit by the US Securities and Exchange Commission.
1/ Today Coinbase received a Wells notice from the SEC focused on staking and asset listings. A Wells notice typically precedes an enforcement action.
— Brian Armstrong (@brian_armstrong) March 22, 2023
Similarly, SEC is targeting SushiSwap with a security violations lawsuit, and Kraken settled with the US regulator last month, prompting it to stop its staking service in the US.
Some analysts believe the lawsuit will precede how Binance operates in the US going forward. A Binance spokesperson reportedly told Blockworks that they have been working with CTFC for over two years, and the lawsuit was “ unexpected and disappointing.” Binance reiterated its commitment to working with CTFC and confirmed it had increased its compliance personnel 7X.
Some believe that settlement would be the best route for Binance. It would probably get a desist warning to stop violating derivatives laws. But going the ligitation way could take longer, possibly negatively impacting Binance.US.
A necessary pressure
Despite the increased regulatory pressure, the US is setting the crypto industry, especially exchanges, into a maturation path. Not only is the pressure setting standards on what assets should be considered a security or commodity, but the enforcement actions and rulings will set clearer regulatory frameworks.
As such, the intense regulatory phase could usher more participants willing to participate in a safer crypto environment and exchanges with proper regulatory standing in the US.
Market reaction
Bitcoin [BTC] dropped below $27K and hit $26.7K before rebounding. It had recovered to $27K at press time. Similarly, Ethereum [ETH] lost hold of $1,700 but was back above the price level at the time of writing. However, Binance Coin [BNB] fell from $329 and was operating below $310 in the same period. It shows market reacted to the development sparingly.