CFTC lawsuit leading to $1.6 billion crypto withdrawals

CFTC lawsuit leading to $1.6 billion crypto withdrawals

The Commodities Futures Trading Commission (CFTC), a leading US regulator, sued Binance. As a result, investors withdrew nearly $1.6 billion worth of bitcoin from the exchange.

The US CFTC filed a lawsuit against the cryptocurrency company’s CEO and its former senior compliance official. Reportedly, the reason was an “illegal” exchange and a “sham” compliance program.

Following the CFTC’s complaint, Binance saw $1.6 billion in total withdrawals and $852 million in the most recent 24 hours. According to blockchain data tracker Nansen, the rate drastically increased from an average of $385 million daily over the previous two weeks.

As Nansen research analyst Martin Lee reports, the outflows were greater than typical. But they were still lower than on December 13, when investors withdrew $3 billion from Binance due to their concerns over Binance’s reserve status.

The market capitalization of all cryptocurrencies is up 2.56% to $1.16 trillion. By stating that it supports ETH as a commodity, the CFTC has drawn attention to Ethereum. The announcement led to a mini-rally of 3.92% in just 24 hours. Bitcoin is currently trading at $27,371.52 and is marginally up 1.54%. Investors are keenly monitoring Binance’s movements regarding the CFTC’s action.

Binance’s collaboration with the CFTC increases its compliance with US and international law enforcement

Binance considered the CFTC’s action unexpected and disappointing. The cryptocurrency platform announced that it had collaborated with the regulator for over two years. During this time, it increased the size of its compliance team. Binance planned to keep doing so with US and international law enforcement.

According to the CFTC, one unnamed US company traded on Binance via a Cayman Islands corporation. Another token was traded on Binance after the company concluded a “services agreement” with a purportedly unconnected organization governed by Jersey law, a British dependency. According to the accusation submitted on Monday in federal court, one-third began trading through a Singapore subsidiary. Later on, they switched to a company incorporated in the Cayman Islands.

According to the CFTC, Binance allegedly advised some US customers to utilize virtual private networks, or VPNs, to hide their location and advised some “VIP customers” with strong US connections to use shell companies. The CFTC said that such VIPs included US-based trading companies.

Reportedly, Binance facilitated the agreements with trading companies via a formal procedure termed “VIP Handling.”

As specified by Hayden Hughes, co-founder of the social trading platform Alpha Impact, the CFTC lawsuit raised the threat of trading firms leaving Binance as a platform.

Hughes believes market makers would normally not want to be caught in a crossfire between the US regulators and Binance.