Cryptocurrencies recognised as commodities

Unlike the US Securities and Exchange Commission (SEC), the CFTC recognizes Bitcoin, Etherium, Lightcoin, Tether, and Binance USD (BUSD) as commodities.

As a reminder, the Securities and Exchange Commission previously stated that the issuance of BUSD could be considered an offering of unregistered securities. Based on this statement, the regulator ordered Paxos to stop the issuance of Stablecoin, which had to comply.

The fact that the aforementioned cryptocurrencies are commodities is explicitly spelled out in the US Commodity Futures Trading Commission lawsuit. According to Crypto Council for Innovation CEO Sheila Warren, this is a serious argument in confronting the SEC.

But Coinbase’s general counsel Paul Grewal said he doesn’t like the lack of consensus among regulators. Here’s his rejoinder.

A security can obviously also be a commodity except where it is not. And it depends on which regulator you ask and when. You are not the only one confused by these definitions. Is this really the best that US law has to offer?

The difference in positions between the SEC and the CFTC regarding the crypto market could still be a positive for the latter. The conflict means that one regulator will not have a monopoly on pressuring the industry. Accordingly, they will have to find a compromise, and in the process a single set of rules for crypto, which at least in the US is definitely lacking, may emerge.

Binance executive’s phone was tapped

Changpen Zhao is mentioned more than once as a defendant in the lawsuit. Evidence for the suit was gathered by accessing group chats and individual correspondence “from Zhao’s phone.” That is, the CFTC explicitly stated that they somehow managed to gain access to the phone of the Binance CEO.

Here’s a quote from a document on the matter.

Zhao has been communicating via Signal with numerous Binance employees, workers and agents for a variety of purposes via Signal with automatic message deletion enabled.

Signal is a popular messenger with an emphasis on anonymity and security. Exactly how the CFTC managed to gain access to Zhao’s correspondence remains an open question. It is likely that representatives of the regulator will have to wait for further clarification on the matter.

Allegations of ties to terrorists

One of the counts of the lawsuit concerns “illegal activity” on Binance. Employees of the exchange allegedly knew that illegal transactions were passing through it and being used to finance crime – including terrorist groups.

In particular, the document mentions an incident that occurred in February 2019. At that time, former compliance chief Samuel Lim received information “about the Hamas terrorist group’s transactions”. Lim allegedly explained to a colleague that terrorists usually send “small amounts” because “large amounts constitute money laundering”.

It is worth noting here that at the end of August 2021, Binance introduced mandatory identity verification for users, i.e. the KYC procedure. This means that with such allegations in mind, such charges are not particularly relevant, as the exchange has come out of the situation.

Centralization of the Binance exchange

Another claim by the regulator: Zhao owns and de facto controls dozens of entities that run the Binance platform as a “common company”. Here’s a quote from the lawsuit in this regard.

As founder and CEO of Binance, Zhao is responsible for all major strategic decisions, business development and management of Binance. Zhao is also involved in the minute details of Binance’s operations. For instance, Changpen has personally approved a spending of around $60 related to office furniture in January 2021. In that month, Binance earned more than $700 million.

How feasible is it for the CEO of a major cryptocurrency exchange? Basically, such tasks should be handled by lower-level managers. Perhaps this fact points to confusion in the company’s management structure, or maybe this furniture was particularly important to Zhao. However, he has the right to do whatever he wants given that it is Changpen who is the founder and head of the platform.

The problems of Binance’s VIP program

The CFTC did not like the terms of Binance’s VIP program. According to the lawsuit, customers who are admitted to such a high level of service have many more hidden benefits. They are allegedly even breaking the law.

Officially, Binance’s VIP program is designed for large traders and investors whose transaction volumes are measured in the hundreds of thousands of US dollars minimum. They benefit from lower commissions, higher funding limits, speedy omissions, sub accounts and access to the VIP portal. There are four types of VIP programs in total: for Traders, Holders, Investors and Borrowers. You can find the requirements for each type by clicking here.

In addition to the aforementioned benefits, VIP members ostensibly receive additional services unofficially. For example, an exchange may give advance notice of a possible investigation by the security authorities into a VIP account and assist with the withdrawal of the funds. In this way, VIP users can avoid having their assets blocked on Binance.

Such actions can be considered illegal – there are enough grounds for a court case. In the case, “aiding and abetting malefactors” can be drawn in, and the very fact of a lawsuit would already be bad news for the exchange.

Binance cryptocurrency exchange ignoring regulatory requirements

Binance is allegedly making “deliberate and planned attempts to evade federal law”. The CFTC cites correspondence between the exchange’s management for 2018 as evidence of this.

In this correspondence, Samuel Lim asks Zhao whether they should completely block users who are on US sanctions lists. He also notes that if they don’t, the exchange could face claims from the US Financial Crimes Enforcement Agency (FinCEN) and the Office of Foreign Assets Control (OFAC).

Again, we are talking here about events five years ago, which are hardly relevant today.

Penalties and compensation from Binance

At the end of the document, CFTC officials said they are demanding monetary penalties, the return of any trading profits, salaries, commissions, credits or fees received as a result of allegedly wrongdoing. The regulator is also seeking to strike a deal with Binance in the form of a payment of a set amount from the exchange.

Binance representatives, for their part, have said that they have denied the string of allegations, in addition the trading platform is expected to publish a more detailed response soon. In an interview with Cointelegraph, a Binance spokesperson noted that the exchange has “three lines of defence” against the claims by US regulators. Here’s the quote.

In line with the expectations of regulators globally, we have implemented a robust “three lines of defence” approach to risk and compliance, which includes, but is not limited to, the following

– enforcing mandatory identity verification (KYC) for all users globally;
– regional blocking of certain services for those who are US residents;
– blocking anyone who is identified as a US citizen, regardless of where they reside in the world;
– blocking for any devices using a US provider cellular connection;
– blocking login from any US IP address;
– preventing credit card deposits and withdrawals at a bank

The market has reacted to the claims against Binance with a tangible drop in the value of Bitcoin, which seems rather weak given the importance of what is happening.


We think the prospects for this claim are rather dim. Still, many of the claims against Binance relate to the period when the exchange did not yet introduce mandatory identity verification, which has been in place for a year and a half already. Naturally, after that it became much more difficult for residents of blocked regions to gain access to the platform's services. And this means that the attitude towards the exchange must now be different, because it is making efforts to improve the platform - including in terms of the law.


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