Something interesting is happening with Binance (BNB). A potentially fatal lawsuit is having little effect on Binance’s price.
The lawsuit alleges Binance is violating federal law by trading cryptocurrency derivatives in the United States. To explain, the Commodities Futures Trading Commission (CFTC) must approve any derivative or future traded in the United States. The CFTC is the agency that regulates derivatives trading in the USA.
CFTC lawyers allege Binance is violating the Commodity Exchange Act (CEA) by offering and executing derivatives transactions in the United States, a press release states. The lawyers filed an enforcement action in US District Court for the Northern District of Illinois on 27 March 2023.
Is Binance Violating US Law?
The CFTC complaint names Binance Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) Holdings Limited, Binance boss Changpeng Zhao, and former Binance Chief Compliance Officer Samuel Lim as defendants. CFTC attorneys are asking a federal judge for a court order barring Binance from trading derivatives in the United States.
Binance violated US law by deliberately not registering with the CFTC as a derivative trader, Ars Technica reports. Instead, Binance executives argue US law does not govern their platform because they domicile the company in Lithuania.
“The defendants allegedly chose to knowingly disregard applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit,” a CFTC press release claims.
“The complaint further alleges that even after Binance purported to restrict U.S. customers from trading on its platform,” a Binance press release notes. “Binance instructed its customers, in particular its commercially valuable U.S.-based VIP customers, on the best methods for evading Binance’s compliance controls.”
Will the CFTC destroy Binance?
The lawsuit can damage Binance (BNB) because 19% of Binance’s trading revenues come from the US, The New York Times estimates.
Conversely, Mr. Market is paying scant attention to the CFTC’s action. For example, CoinMarketCap gave Binance a $325.80 Coin Price early on 27 March 2023. That price fell to $317.73 on 31 March 2023. Hence, the lawsuit took less than $10 off Binance’s Coin Price.
Similarly, Binance’s Market Capitalization fell from $51.62 billion on 27 March 2023 to $50.166 billion on 31 March 2023, CoinMarketCap estimates. Hence, Binance lost $1.454 billion in Market Capitalization or a little over 3% from the lawsuit.
Interestingly, Binance’s 24-Hour Market Volume grew from $368.44 million on 27 March 2023 to $442.73 million on 31 March 2023. I think the growing market volume shows more speculator interest in Binance.
Thus, the CFTC action’s effect on Binance is not that great. Speculators are ignoring the action and betting on Binance.
Will the CFTC Destroy Binance USD?
Similarly, the CFTC action had little effect on the popular Binance USD (BUSD) stablecoin.
For example, Mr. Market paid 99.95₵ for BUSD on 27 March 2023 and 99.97₵ on 31 March 2023. In contrast, Binance USD’s Market Capitalization fell from $8.02 billion on 27 March 2023 to $7.569 billion on 31 March 2023. Conversely, Binance USD’s 24-Hour Market Volume fell from $3.4 billion on 27 March 2023 to $3.251 billion on 31 March 2023.
It appears speculators are still buying the Binance USD stablecoin. Speculators want BUSD because it makes payment in US dollars. The US dollar is the world’s most widely accepted currency, which gives BUSD enormous value.
I predict BUSD will maintain its value because of the dollar’s popularity. In particular, I think many people outside the US buy BUSD and other stablecoins to get dollars or pay in dollars.
Why are Speculators still buying Binance?
So what are speculators betting on here? Why are they still buying Binance and BUSD after the CFTC action?
First, the enforcement action is just a court action. Essentially, CFTC attorneys are asking the federal courts if Binance is violating the CETA.
CFTC lawyers are also asking what the legal status of cryptocurrency derivatives and similar synthetic investments, including stablecoins, is in the US. In particular, CFTC lawyers want to know if their agency has jurisdiction with synthetic assets created or trade outside the US.
CFTC lawyers ask if it is legal for US residents to trade synthetic assets and crypto derivatives outside the United States? If the answer is yes, Binance’s value could skyrocket. If the answer is no, Binance could experience enormous losses.
Thus, speculators bet courts will rule in Binance’s favor or it could take years for courts to rule. I think this case could go all the way to the US Supreme Court. To explain, both sides can appeal any judge’s ruling in this case to higher courts. That process can take several years.
How Much can Binance Lose in the CTFC action?
Determining Binance’s revenues is tough because it is a private company domiciled in places such as Lithuania. However, we can use figures in news articles to make some rough comparisons.
Reuters estimates Binance’s 2022 annual trading volume at $23 trillion, Ars Technica claims. The New York Times estimates that 19% of Binance’s trades come from the US.
Using these numbers, I calculate Binance’s trading volume could fall by $4.37 trillion to $18.63 trillion if the CFTC blocks it from operating in the United States. Thus, Binance will still offer enormous value because it could still have an $18.63 trillion trading volume.
My prediction is that Binance will survive a CFTC ban. However, it will face losses.
Conversely, Binance could easily keep its US trading volume by opening an office in Chicago, forming a US based company to run the US operation, and registering its trades with the CFTC. Thus, Binance can survive and make money. If Zhao is follows US law.
In the final analysis, the speculators who keep buying Binance and BUSD could be smart. The CFTC action may not be the fatal threat the media is portraying it as.