Crypto Diverges Amid SEC Action

Now that FTX is no longer around, regulators have turned their attention to the world’s largest cryptocurrency exchange Binance. The U.S. Securities and Exchange Commission (SEC) named the company and its founder / controlling shareholder, Changpeng Zhao (CZ), as defendants in the complaint. 📝

Regulators allege the overseas company operated an illegal trading platform in the U.S. and misused its customers’ funds. More specifically, it claims that:

  • BAM Trading and BAM Management U.S. Holdings, Inc. misled investors about non-existent trading controls over the Binance.US platform.
  • The defendants diverted customers’ funds to a trading entity Zhao controlled called Sigma Chain. That trading firm made Binance’s volume appear larger through manipulative trades. 
  • Binance concealed its commingling of customer assets with Merit Peak, another entity owned by Zhao, to the tune of billions of dollars.

It also raises the widespread issue of whether many of the tokens traded on the platform are securities and, therefore, subject to U.S. securities laws. 🎯

The suit marks the first federal regulatory suit against Binance’s U.S. but adds to Binance’s global entities mounting challenges with U.S. regulators. For example, the Commodity Futures Trading Commission (CFTC) targeted Binance and Zhao over its derivative offerings in March. And the Justice Department is investigating Binance’s programs to detect money laundering.

Overall, it seems like this will be an uphill battle for Binance. As usual, crypto folks almost make things too easy to get caught. For example, the SEC complaint quoted Binance’s chief compliance officer saying in 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.” If that’s true, then this case likely has some legs. 😵

Today’s news obviously put some price pressure on the entire crypto space and related equities. With that said Bitcoin’s positive correlation with the U.S. stock market has been weakening for the last two months. The chart below shows Bitcoin prices falling as the Nasdaq 100 rises. We’ll have to wait and see if that trend continues. But clearly, the pressure on crypto companies operating in the U.S. remains high. 🕵️

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