A few days ago, Binance submitted a written response to the court, explicitly accusing the Commodity Futures Trading Commission (CFTC) of only suing it in an attempt to extend its reach beyond the US in terms of crypto regulation.
The crypto exchange argues that the agency’s claims, which it describes as overreaching, are unfounded due to a jurisdictional issue, and accuses it of also attempting to regulate foreign individuals and companies that reside and operate outside of the US.
“Congress did not make the CFTC the world’s derivatives police, and the Court should reject the agency’s effort to expand its territorial reach beyond what is permitted by the law.”
Crypto regulation: the CFTC’s case against Binance
It all started in March, when the US CFTC filed a lawsuit against Binance for alleged derivatives trading violations.
It should be noted that this case is not about Binance US, the US company that operates the crypto exchange reserved for US residents, but about Binance.com, the international platform that, in theory, should not operate in the US.
The Commodity Futures Trading Commission is the US government agency that regulates the commodities and financial derivatives markets in the US.
In theory, it should only operate in the US, and Binance.com is a foreign company that should not be offering its services to Americans.
However, the CFTC claims that Binance broke the law by offering services to US residents, which is why it sued. In this case, instead of providing services through Binance US, which is licensed to operate in the US, it would have done so directly through Binance.com.
Binance in the US
The fact is that in order to avoid charges like the CFTC’s, Binance US does not offer crypto derivatives trading to its users, only spot trading.
Therefore, the CFTC’s charges cannot relate to services that Binance US simply does not offer.
On the other hand, the international platform Binance.com also offers derivatives trading, a service with much higher volumes than normal spot trading: $50 billion in the last 24 hours alone, compared to $12 billion.
In theory, US residents should not use Binance.com, but only Binance US, and therefore should not be able to trade crypto derivatives on Binance.
The CFTC, on the other hand, accuses the foreign exchange of allowing US residents to trade crypto derivatives on the international platform, to which they should theoretically not have access.
The international exchange has always denied these allegations and is now countering that this is merely an attempt to extend the power of the US agency outside the US.
Crypto regulation: Binance’s fight
It should be remembered that crypto regulation varies from country to country.
In the US, for example, there is still no specific crypto regulation and the traditional rules that apply are particularly strict.
In particular, the US requires those who wish to offer financial derivatives trading to US citizens to apply for and receive authorisation from the same authority.
Neither Binance US nor Binance.com has ever sought and obtained such approval because the former does not offer such services and the latter should not, in theory, offer services to US citizens.
Therefore, if Binance is correct that it has never offered the crypto derivatives trading service to US citizens, it would not have violated any regulations.
In this case, it is asking the court to dismiss the CFTC’s lawsuit, arguing that the only reason for filing such a lawsuit would be to expand the agency’s power overseas.
It is unclear how the case will turn out, not least because the CFTC instead claims that Binance.com also offered its crypto derivatives trading services to US citizens.
However, if the judge does not decide to dismiss the case, it could drag on for quite some time.
This is not the only problem facing the world’s largest crypto exchange at the moment.
In fact, during the first three quarters of the year, it lost significant market share globally. Although it remains by far the largest crypto exchange in the world, some users have decided to migrate to other platforms, perhaps because of the numerous problems it has had with various authorities around the world.
To tell the truth, it does not seem that these problems have caused the platform any major technical problems, apart from the suspension of deposits and withdrawals in euros, which is being restored, and the closure of debit cards in Europe.
This is probably a period of transition, from a time when there were few controls and the company prioritised growth over compliance, to a time when growth has taken place and the company can finally focus on compliance.