‘Fatal Blow?’: Crypto Industry Reacts to CFTC Suit Against Binance
Though the exchange’s CEO seemingly dismisses latest action in a tweet, some say the company could have a hard time defending itself
Artwork by Axel Rangel modified by Blockworks
As the CFTC perpetuated a string of enforcement actions against crypto companies by suing Binance and its CEO Monday, industry watchers warned that the crypto exchange could have a hard time defending itself.
The action also illustrates the continued turf war between the CFTC and SEC.
The CFTC is attempting to strike a “fatal blow” to Binance, Adam Cochran, a partner at Cinneamhain Ventures tweeted Monday.
The commodities-focused regulator alleges that Binance and its CEO, Changpeng Zhao, broke trading and derivatives laws. Samuel Lim, Binance’s former chief compliance officer, is also named as a defendant in the case — filed Monday in US district court for the Northern District of Illinois.
“At first read through…I think they actually have really strong chances here of succeeding in toppling the Binance empire,” he wrote.
A Binance spokesperson did not immediately return a request for comment.
Zhao tweeted “4” Monday — a reference to a January tweet in which he said he would use the number to encourage people to “ignore FUD, fake news, attacks, etc.” The executive commonly uses FUD, an oft-used crypto industry term meaning fear, uncertainty and doubt.
“This filing is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years,” a Binance spokesperson told Blockworks in an email. “Nevertheless, we intend to continue to collaborate with regulators in the US and around the world… to develop a clear, thoughtful regulatory regime.”
Commodities versus securities
Meltem Demirors, chief strategy officer at crypto investment firm CoinShares, said in a tweet that all eyes are on the lawsuit.
She noted that the case is similar to the CFTC’s case against BitMEX — “albeit less OFAC violation focused and more concerned [with] marketing and product access for US retail,” the executive tweeted.
The regulator ordered BitMEX entities to pay a $100 million in August 2021 after alleging that the crypto platform illegally accepted orders and funds from US customers to trade derivatives on bitcoin (BTC), ether (ETH), and litecoin (LTC).
Demirors added that the CFTC’s claims in the latest suit against Binance that bitcoin and ether are commodities counter the SEC’s stance.
SEC Chair Gary Gensler has said in interviews in the past year that while he views bitcoin as a commodity, most other crypto tokens are securities.
Monday’s complaint also labels litecoin, as well as stablecoins tether (USDT) and Binance USD (BUSD) as commodities. This distinction points to “the confusion being caused by the lack of clear regulations in the US,” according to Yankun Guo, a partner at Chicago law firm Ice Miller.
“It shows that both the multifaceted nature of how tokens function and how they are used can cause them to fall under multiple agency’s jurisdiction; but this is also an issue if the same company/exchange is sued by the multiple agencies for the same tokens,” Guo told Blockworks in an email. “I wouldn’t be surprised to see a similar lawsuit by the SEC naming all the same tokens except BTC as securities.”
Regulation by enforcement nothing new
The case is the latest enforcement action against a crypto company as some industry participants say US regulators seek to regulate the industry by force in the absence of a comprehensive framework for the sector.
US regulators have targeted other platforms for the failure to register with them, said Jeffrey Blockinger, chief legal counsel at decentralized exchange Vertex Protocol.
The SEC sued Tron Network founder Justin Sun last week for allegedly selling unregistered securities. The commission also served Coinbase with a Wells notice related to potential alleged securities violations. The notice relates to an “unspecified portion” of its listed digital assets, according to Coinbase — which the company says are not securities.
“Binance may choose to fight this but if the alleged facts are true, it will have a difficult time defending itself,” Blockinger told Blockworks in an email. “The issues are much less nuanced than current matters involving the SEC related to whether a particular token satisfies court-established precedent for what constitutes a security,” he said.
Updated March 27 2023 at 2:01pm ET: Added comment from Binance.
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