Binance Is Under Investigation By The CFTC
Anna Carpenter
Tue, 03/16/2021 – 14:57

FRNT Financial

Publication Date





The Top 10 was marginally lower this morning, with spot volumes exceeding the 30-day average on the move. Ripple (XRP) is the exception and is up 9%.

Crypto Story of the Day

Binance, the most active crypto trading venue by volume, is being investigated by the U.S. CFTC for allegedly allowing U.S. residents to trade derivatives that violated local rules, Bloomberg reports. This is confirmation that crypto, particularly unlicensed foreign derivative venues, remain in the focus of U.S. regulators.

Binance, which didn’t comment on Bloomberg’s report, has taken efforts to siphon its global exchange from U.S. traders by launching Binance.US in September 2019. The new venue accepts fiat currency deposits and trading, but doesn’t offer derivatives trading, including leveraged positions. It also offers staking services to its users for a number of coins, but not Ethereum (ETH).

Binance updated its terms of use agreement to include a statement that the venue is “unable to provide services to any U.S. person” shortly after it announced the planned launch of Binance.US in June 2019, eventually placing a hard deadline for U.S. traders to remove funds from the global venue in December 2020. 

When asked in September 2018 if Binance had taken any efforts to “keep U.S. residents from using Binance or buying [Binance Coin],” CEO Chengpeng Zhao responded, “not that I know of.”

In November 2020, Coinbase announced it was disabling margin trading in “response to new guidance from the [CFTC]” without referencing specific communications from the regulator. In its public offering prospectus, Coinbase acknowledged that in 2017, the CFTC “commenced an investigation” that had “covered topics including a 2017 Ethereum market event, trades made in 2017 by one of [Coinbase’s] then-current employees, the listing of Bitcoin Cash on [Coinbase’s] platform, and the design and operation of certain algorithmic functions related to liquidity management on [Coinbase’s] platform.” 

The 2017 ETH market event seemingly refers to a flash crash the asset suffered on the exchange. In October of last year, the CFTC announced charges against BitMEX, a crypto-to-crypto trading venue that barred U.S. residents from accessing the platform. The charges included allegations of “operating an unregistered trading platform and violating multiple CFTC regulations,” including implementing anti-money laundering procedures. 

Documents from that case cite circumstances dating to as far back as 2014 and quote then-CEO Arthur Hayes regarding offering services to U.S. residents from 2015. Ahead of the charges being revealed, Bloomberg reported about the CFTC’s probe into BitMEX.

We see this as part of an ongoing effort, which began in earnest with BitMEX, for U.S. regulators to charge unlicensed— and often foreign— derivative platforms. While Binance did launch a U.S. exchange tailored to the regulatory framework, U.S. residents weren’t fully barred from accessing services on the global Binance for some time. 

Furthermore, the CFTC BitMEX case shows that regulators aren’t willing to overlook mistakes made during crypto’s early years when regulatory guidance was arguably in its infancy. The U.S. is making it abundantly clear that they believe their existing regulatory infrastructure is entirely applicable to crypto derivatives.  

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