The CFTC seeks permanent trading ban on Binance's trading

Yesterday brought an intriguing development in the cryptocurrency market as Commodity Futures Trading Commission (CFTC) charged Changpeng Zhao (Binance’s CEO), Samuel Lim, and three other legal entities operating collectively as Binance with numerous violations of the Commodity Exchange Act (CEA) and other CFTC regulations. In the release document, the agency states that it seeks “disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations,” which paints a stark contrast to a tone used in previous cases against cryptocurrency exchanges.

According to the complaint, Binance’s CEO urged employees to circumvent compliance controls to maximize profits. The document alleges that for the relevant period since 2019, the exchange did not require its customers to provide any identity-verifying information before trading on the platform, failing to comply with anti-laundering, anti-manipulation, and anti-terrorist laws. Furthermore, the document alleges that the exchange’s management prompted its employees to use a message-deleting application (supposedly Signal) in order to destroy evidence about the malicious conduct. The complaint states that the defendants “conducted certain activities outside the U.S. designed to avoid CFTC regulation, such as intentionally structuring their entities and transactions to avoid registration requirements and instructing U.S. customers as well as other customers as to how to evade Binance’s compliance controls.”

As if it was not enough, the document also notes that Changpeng Zhao traded on the exchange's platform through approximately 300 accounts linked to him directly or indirectly (accounts owned by Merit Peak and Sigma Chain are also mentioned in the document), failing to disclose this fact to customers while also not subjecting mentioned accounts to any anti-fraud or anti-manipulation surveillance or controls.

These are just some of the highlights from the 74-page-long complaint that asserts Binance’s management was aware of the United States regulatory requirements but ignored them. As such, the lawsuit against Binance, combined with the ambitious goals of the CFTC (to impose a permanent trading ban on the exchange), may spill colossal trouble for the cryptocurrency market. Due to that, we raise a word of caution to investors; if you are naive and trusting, dismissing all of the developments as “FUD,” then you better be ready for a harsh lesson. Nevertheless, our outlook stays bearish, and we expect Bitcoin to retest its 2022 lows in the coming months.

Illustration 1.01
. The picture above shows the daily chart of BTCUSD. The red arrow shows declining volume, which we described as a questionable development (as for the rally's sustainability). We would like to see an uptick in volume accompanying the price drop to bolster a bearish case in the short term. The weakness in the stock market (especially the highly correlated tech sector) will also bolster this thesis (as we previously noted that a rebound in stocks would provide a temporary lifeline for cryptocurrencies).

Technical analysis
Daily time frame = Neutral
Weekly time frame = Bullish (weak trend)

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
Trade active:
As a fallout of this whole situation, a federal judge temporarily stopped bankrupt Voyager Digital from completing a proposed $1.3 billion sale to Binance.
Trade active:
Media outlets report that Binance hid its extensive links to China for several years, setting a tone for an even harsher response from the regulator if these allegations are true.


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