> I suppose you could argue about whether the CFTC's relevant regulations protect anyone, but they certainly think they do, and if so it's easy to argue that Binance was skirting those protections.
There are two weird things here. The first is that the CFTC does have purvue to protect the American people. However, if Binance were to simply say “we now accept US citizens” — the trading cited here would be allowed. Market makers are accredited investors.
It’s rather because they offer services to investors who are not US based which, if they were offered to US investors, would only be allowed to be offered to Accredited Investors — Binance has chosen to not offer services in the US, and allowed Accredited Investors (the same group who would be permitted if they did operate in the US).
The case is interesting. Even though these traders were operating significant portions of their business from the US, the claim will be made that they were acting as their international subsidiary.
> if Binance were to simply say “we now accept US citizens” — the trading cited here would be allowed
No, it wouldn't. Derivatives exchanges and swaps settlement requires licenses, e.g. from the CFTC. Also, the swaps analog for accredited investor is eligible contract participant (ECP) [1].
> the allegedly “protected” parties in this case would still be able to trade with Binance if Binance were licensed
Correct. Except those parties would have their own risk disclosure obligations which the CFTC could check.
It’s easy to hide leverage in swaps. They also uniquely accumulate counterparty risk, since the standard way to close out a swap isn’t to cancel the original swap, but to enter into a new, counter-balancing one. This means even a minor party failing can lead to systemic risk as positions their counterparties assumed were hedged are now levered and open. Add in opaqueness, and any swap participant going under leads to legitimate concerns about everyone else. This happened in 2008. The rules Binance helped institutions evade are the ones that were written to prevent that form of crisis re-emerging.
This is a nice story but it's just not true. The amount of leverage built up in the derivatives market on Binance is completely transparent. The trading shops named in the CFTC suit are very unlikely to blow themselves up in anything remotely resembling the way 2008 unfolded, and the CFTC regulations are not designed to catch anything important that might realistically be going on under the surface here.
The point of this CFTC lawsuit is to attack crypto, no more, no less. If you don't like crypto, you may think that's a good thing, but I'd argue that it's always a bad thing when regulators leverage technicalities to achieve political ends. And make no mistake, that is exactly what is happening here.
Yes, I mean it would be absurd to argue that there isn’t more systemic risk in crypto markets.
The question I keep pointing at though is, why does it matter? These are not retail traders. They’re institutions that are considered experts in their field and hold no customer deposits (aside from accredited investors, who are again considered knowledgeable enough to not need government oversight to invest).
Everyone here ostensibly knows the risks and their crash won’t tank i.e. the housing market or pension funds.
There are two weird things here. The first is that the CFTC does have purvue to protect the American people. However, if Binance were to simply say “we now accept US citizens” — the trading cited here would be allowed. Market makers are accredited investors.
It’s rather because they offer services to investors who are not US based which, if they were offered to US investors, would only be allowed to be offered to Accredited Investors — Binance has chosen to not offer services in the US, and allowed Accredited Investors (the same group who would be permitted if they did operate in the US).
The case is interesting. Even though these traders were operating significant portions of their business from the US, the claim will be made that they were acting as their international subsidiary.