Bitcoin falls after CFTC sues crypto exchange Binance for allegedly breaking trading rules

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A wors­en­ing macro­eco­nom­ic cli­mate and the col­lapse of indus­try giants like FTX and Ter­ra have weighed on bit­coin’s price this year.

STR | Nur­pho­to via Get­ty Images

Cryp­tocur­ren­cies dropped on Mon­day morn­ing after the CFTC sued Binance, the biggest cryp­to exchange in the world, for alleged­ly vio­lat­ing trad­ing rules.

The price of bit­coin slid 3% to $26,955.61, accord­ing to Coin Met­rics. Ether fell 3.5% to $1,704.56.

In a court fil­ing, the CFTC, or the Com­mod­i­ty Futures and Trad­ing Com­mis­sion, said Binance vio­lat­ed eight pro­vi­sions of a com­modi­ties trad­ing law “designed to pre­vent and detect mon­ey laun­der­ing and ter­ror­ism financ­ing.” The law­suit, which was filed Mon­day in a fed­er­al court in Chica­go, has the poten­tial to upend the exchange’s operations.

Dessisla­va Aubert, an ana­lyst at cryp­to data provider Kaiko, said although bit­coin’s March ral­ly had already start­ed to slow in the last week, the down move Mon­day was large­ly dri­ven by the news about Binance. It’s “the largest cryp­to exchange and any U.S. reg­u­la­to­ry action against it will have huge impli­ca­tions for the indus­try,” she said. 

The CFTC court fil­ing fol­lows a CNBC report on Binance employ­ees who have worked to sub­vert the exchange’s com­pli­ance con­trols in Chi­na. Sim­i­lar­ly, CFTC alleges that Binance has instruct­ed its work­ers and cus­tomers to cir­cum­vent these controls.

“Many knew Binance had a bulls­eye on its back, but this is still unnerv­ing some cryp­to traders,” said Ed Moya, an ana­lyst at Oan­da. “Binance’s suc­cess is need­ed to ensure a good part of the cryp­to­verse can grow.”

Cryp­to exposed equi­ties suf­fered from the news too. Coin­base and Micros­trat­e­gy each fell 10%. Min­ers Marathon Dig­i­tal, Hut 8 and Riot Plat­forms lost about 8% each.

The loss­es came in tan­dem with a surge in bond yields, which pushed the tech-heavy Nas­daq Com­pos­ite down 0.6%. Ris­ing rates make future prof­its, like those promised by growth-ori­ent­ed com­pa­nies, less attractive.

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Bit­coin in March

The CFTC’s com­plaint about Binance is the lat­est chap­ter in this year’s reg­u­la­to­ry crack­down on cryp­to busi­ness­es, which has been a sig­nif­i­cant price cat­a­lyst for bit­coin and helped it diverge from its pre­vi­ous­ly high cor­re­la­tion with stocks. That cor­re­la­tion has been sit­ting at its low­est lev­els since Sep­tem­ber 2021. 

Mon­day’s ini­tial drop was the biggest move for bit­coin since March 22, when the Secu­ri­ties and Exchange Com­mis­sion issued Coin­base a Wells notice warn­ing the exchange that it iden­ti­fied poten­tial vio­la­tions of U.S. secu­ri­ties law.

Cryp­tocur­ren­cies quick­ly bounced off their lows Mon­day, although they remained in the red. A sim­i­lar thing hap­pened on March 22 fol­low­ing Coin­base’s bad news.

Bit­coin is still on track to cap a win­ning month, how­ev­er. For the month it has advanced 16%, while ether has gained 6%. Before Mon­day, ana­lysts had said the March ral­ly may be peter­ing out, but that a long-term bull­ish for­ma­tion has been established.

—CNBC’s Rohan Goswa­mi con­tributed reporting

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