Crypto exchange Binance’s problems continue to pile up, while billions of dollars are being pulled from it by worried traders.
● In one day: 3 billion dollars were withdrawn from the largest crypto exchange in the world
● An increase of over 60% since the beginning of the year: what is behind the comeback of Bitcoin?
● The suspicious transaction behind the fall of Deutsche Bank shares at the end of the week
The Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance this week, alleging that the exchange operated in the US illegally “and violated rules designed to prevent improper financial activity.” Last week, Binance announced that it would once again start charging fees for spot trading in Bitcoin, After lowering them to zero in the summer, the exchange also suspended all spot trading for a few hours, while a software problem was fixed.
The spot market, or market for immediate delivery, is a virtual or physical trading arena where financial instruments or goods are traded for immediate delivery – that is, within two business days from the date of the transaction.
As of Monday, Binance had experienced $2.1 billion in withdrawals on the Ethereum blockchain over seven days, according to crypto data firm Nansen. In total, Binance holds $63.2 billion in the exchange’s publicly visible wallets, according to Nansen.
“The rate of withdrawals is increased compared to normal activity, and after the CFTC announcement it has increased even more,” noted Andrew Thurman, an analyst at Nansen.
However, Binance has already experienced larger withdrawals than this in the past due to regulatory measures. For example, in February, Secretary Thurman, after New York regulators announced that they were banning the issuance of Binance’s stablecoin, BUSD, withdrawals peaked at a billion dollars every 24 hours. The currency, which is the third largest stable currency in the world, has been cut by more than half of its value so far this year.
Binance’s decision to bring back trading fees probably contributed to its declining presence in the spot market, analysts estimated. Its share of the spot trading market as of March 24 was lower than 30% compared to 57% at the beginning of the month, according to CryptoCompare, so most trading on Binance is also done with zero commissions.
“Fees are very important,” said John Quernstrom, portfolio manager at crypto hedge fund Iceberg Capital. “In general, I will make a decision to trade in a certain exchange first of all on the basis of its management; the second consideration is without a doubt the commissions.”
Binance, however, maintained a 66% share of the crypto derivatives market as of March 24, according to CryptoCompare.
“Continuing fraud” but no explicit charges
If all that wasn’t enough, on Tuesday a federal judge prevented Binance.US, Binance’s American subsidiary, from acquiring accounts of clients of bankrupt trading platform Voyager Digital until federal authorities approve the deal.
Investors and analysts are waiting to see if there will be more regulatory actions against Binance in the coming months in the US and possibly in other jurisdictions. The company’s chief strategy officer told the Wall Street Journal last month that Binance intends to pay fines to settle regulatory and legal proceedings concerning its operations in the US .
Binance’s persistent efforts to evade U.S. rules and allow Americans to trade its crypto exchange outside the U.S. are seen by authorities as part of an “ongoing scam,” CFTC Board Chairman Rustin Behnem noted.
In this context, Chris Perkins, president of the crypto venture capital company CoinFund, and a member of the Advisory Council on the Global Market at the CFTC, stated that “the arm of the American agencies is very long”.
Speaking to CNBC, Behnem said that Binance deliberately evaded the CFTC’s registration requirements by instructing clients on how to connect to the exchange without disclosing their location in the US. Binance never registered with the CFTC, so it was not legally authorized to offer crypto derivatives to US investors. , was explained by the regulatory authority.
“This was an ongoing scam that began in 2019, an ongoing violation of the Commodity Exchange Act,” Behnem claimed on the Squawk Box interview show. “This seems like a pretty clear case of evasion, and something we should have intervened in aggressively and as quickly as possible.”
However, a spokesman for the CFTC clarified that Behnem “spoke in general about the fraudulent activity of Binance”, but the agency did not accuse Binance or its managers of fraud as defined in the law on which the CFTC is based.
“After FTX, nobody wants to risk it again”
Binance said it has made efforts to operate in the US legally, including establishing a subsidiary, Binance.US, which offers a limited menu of crypto products to American users.
Binance founder, Chengfeng Zhaocalled the CFTC’s claim “unexpected and disappointing”, adding that the exchange “has been working in cooperation with the CFTC for more than two years”.
Some investors have pulled out of Binance, fearing a “run to the banks” in the way that brought down crypto exchange FTX and other lending platforms last year.
Francois Clouseau, head of trading at crypto market maker Flowdesk, said it has reduced its exposure to Binance since February. “We always try to keep minimum funds in stock exchanges, but now we have reduced even more,” said Clouseau. “We had a terrible year with FTX, and nobody wants to take that risk again.”