Investors Pull $1.6 Billion After US CFTC Charged Binance

The leading cryptocurrency exchange Binance has experienced a mini bank run after it was charged by US regulators.

On Monday the US Commodity Futures Trading Commission (CFTC) sued Binance along with its CEO and former top compliance executive, alleging that they were operating an “illegal” exchange and a “sham” compliance program.

The CFTC alleged in the civil suit filed on Monday that a large proportion of Binance’s trading volume and profits derive from “extensive solicitation of and access to” US customers.

Investor withdrawals

Binance however denies that it does business in the US, saying it has made “significant investment” in controls that specifically ban customers with US identity documents or mobile phone numbers, for example.

But the CFTC said those controls were only introduced in 2021, and alleged that at that time Binance advised US customers how to circumvent them through the use of VPNs and shell companies.

Now Reuters reported that blockchain data tracker Nansen on Wednesday said that following the CFTC lawsuit and allegations, investors had withdrew $1.6 billion of cryptocurrency from Binance.

Since the lawsuit, Binance has seen $1.6 billion of overall withdrawals and $852 million in the last 24 hours, Nansen reportedly said, in a step up from the average of $385 million per day over the last two weeks.

Martin Lee, research analyst at Nansen, was quoted as saying that the outflows were higher than usual, but still not as high as 13 December, when investors pulled $3 billion from Binance as they grew nervous about the status of Binance’s reserves.

Days after that investor pulldown in December, the founder of Binance Changpeng Zhao, known as CZ, insisted that the withdrawals were simply proof of the sound footing that Binance had, and he labelled the huge withdraws a “stress test”, while reassuring depositors that the exchange’s reserves were sound.

Binance chief executive Changpeng Zhao. Image credit: Binance

Binance had at one point last year briefly said it would acquire FTX in order to resolve the company’s liquidity issues, before pulling out of the deal days before FTX filed for bankruptcy.

Constructive talks

The largely unregulated crypto industry has faced increasingly tight scrutiny from regulators since the collapse of two major crypto operations last year – the TerraUSD “stablecoin” and another major exchange FTX – taking about $2tn of digital wealth with them.

Last week Coinbase, the biggest US-based crypto exchange, disclosed that it had been notified of a planned lawsuit by the Securities and Exchange Commission (SEC) over alleged violations of a range of investor-protection laws.

Last month it was reported that Paxos, the company behind the Binance-branded “stablecoin” token Binance USD, was in “constructive” talks with US federal securities regulators.

“We are engaged in constructive discussions with the SEC, and we look forward to continuing that dialogue in private,” Paxos chief executive Charles Cascarilla was quoted as saying at the time.

New York City-based Paxos had said it would stop minting the BUSD token after receiving an order from the New York Department of Financial Services.

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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