Bitcoin and Ethereum Tumble as Binance Faces CFTC Lawsuit

The Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance, the leading cryptocurrency exchange by trading volume, and its CEO, Changpeng Zhao. The U.S. regulator accused the exchange of violating trading and derivatives rules, leading to a drop in both Bitcoin and Ethereum prices.

The lawsuit alleges that Binance has operated a facility for trading digital asset derivatives in the U.S. since at least July 2019, enabling residents to trade futures, swaps, and options on cryptocurrencies, including Bitcoin, Ethereum, and Litecoin. Binance and Zhao are accused of disregarding federal laws by failing to register with the CFTC, undermining their compliance program, and assisting users in using VPNs to obscure their locations.

Cryptocurrency markets and stocks of crypto companies, including Coinbase, Marathon Digital, Riot Blockchain, and MicroStrategy, were negatively impacted by the lawsuit news. Bitcoin fell 3.3% to $26,800, while Ethereum dropped 2.9% to under $1,700. Binance's exchange token, BNB, also fell 3.3%.

Morgan Stanley analysts noted that Bitcoin trading order book liquidity is at its lowest level in a year, meaning lower volumes can drive larger price moves than before. Binance now sets the daily price for Bitcoin, with its share of trading volume reaching 80%. Stablecoin issuance, such as Tether (USDT), has increased, but hasn't been enough to offset the reduction in other stablecoins like Binance USD (BUSD) and USD Coin (USDC).

The CFTC's lawsuit against Binance is the latest development in an ongoing regulatory crackdown on crypto businesses. The outcome of this case could have significant implications for the industry and crypto markets.