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Binance. SEC Lawsuit Leads to Banking System Cut-Off

The "Crypto Regulator Wars."


In a major blow to Binance.US, the cryptocurrency exchange is set to be cut off from the banking system following a lawsuit filed by the U.S. Securities and Exchange Commission (SEC). Binance.US informed its customers via email that its payment and banking partners have indicated their intention to pause U.S. dollar fiat channels, potentially starting from June 13.

The disruption means that Binance. US's ability to accept USD fiat deposits and process USD fiat withdrawals will be impacted, although the exchange assured its customers that it maintains 1:1 reserves for all customer assets. In response to the situation, Binance.US announced on Twitter that it is suspending USD deposits and recurring buy orders, and transitioning to become a crypto-only exchange.


The SEC lawsuit, filed on Monday, accuses Binance and its founder Changpeng 'CZ' Zhao of mishandling customer funds, misleading investors and regulators, and violating securities rules. The agency has also stated its intention to freeze Binance.US's assets and protect customer funds, including repatriating client investments held abroad.


In an email to customers, Binance.US expressed its concerns about the SEC's tactics and the challenges they have created for the banks it works with. The exchange emphasized its commitment to protecting its customers and platform, stating that it is taking proactive steps while transitioning to a crypto-only exchange. Binance.US reiterated that it maintains 1:1 reserves for all customer assets and that trading, staking, deposits, and withdrawals in cryptocurrencies remain fully operational.


The SEC's allegations were deemed "unjustified" by Binance.US, which pledged to vigorously defend itself against the meritless attacks of the regulatory body. The platform disclosed its plans to delist trading pairs involving the U.S. dollar next week but assured customers that it will continue to support pairs involving stablecoins, which are tokens designed to maintain a constant value, typically pegged to $1.


Richard Galvin, co-founder at Digital Asset Capital Management, highlighted pricing differentials emerging between Binance.US and Binance.com as U.S. customers rush to sell and withdraw U.S. dollars from the exchange. A similar situation occurred in late May when Binance Australia faced disruption as it was about to lose a crucial Australian dollar payment route.


The repercussions of the SEC lawsuit have impacted Binance's native token, BNB, which experienced a decline of up to 4.4% on Friday, adding to its recent underperformance compared to the broader digital asset markets. Bitcoin and Ether, the top two cryptocurrencies, also witnessed a slight decline of about 1% in response to the news.


The SEC's actions against Binance and Coinbase mark an escalation in its crackdown on the cryptocurrency industry. Coinbase, which was targeted in a subsequent lawsuit, has vehemently denied the SEC's claims and expressed its readiness to take the legal battle all the way to the Supreme Court.


As the situation unfolds, Binance.US traders and investors using the platform should exercise caution and closely monitor developments. The disruption serves as a reminder of the risks and challenges associated with investing in cryptocurrencies, particularly in the face of increasing regulatory scrutiny.

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