The lawsuit filed by the Commodity Futures Trading Commission (CFTC) against Binance and its CEO Changpeng Zhao (CZ) rattled the crypto market yesterday, causing the Bitcoin price to drop by $1,300 and 5% at times. At press time, BTC was stabilizing around the $27,000 mark, yet the outcome of the Binance trial could be a key driver of price trend in the medium term.
The accusations against Binance weigh heavily. Among other things, the CFTC accuses the world’s largest crypto exchange of trading on its own platform with 300 accounts directly or indirectly (owned by CZ), supporting money laundering and intentionally circumventing US law.
Cumberland Sees 3 Scenarios For CFTC Vs. Binance
On Twitter, Cumberland, a specialized crypto asset trading company within DRW Holdings, opinions that the Binance lawsuit is now a major driver of Bitcoin price performance and the overall crypto market. In addition, Cumberland presents three scenarios of how the trial could end and what the consequences could be for Bitcoin and the entire crypto market.
The outcome is likely going to fall into one of these three scenarios: (1) Clearer guardrails, but no material penalty (i.e. they win the case scenario); (2) Clearer guardrails, but a manageable penalty; (3) Clearer guardrails, but significant penalties.
According to Cumberland, the way to get there is likely to be through a short-term settlement or else a lengthy, multi-year legal odyssey that only then leads to a settlement or court decision. For cryptocurrencies more broadly, scenario number one is clearly bullish, while a lengthy case like Ripple’s against the SEC would be bearish.
“But since the path for any of these in the near term is still unclear, near-term price action and volatility are similarly uncertain,” writes Cumberland, which continues to forecast that the litigation will further exacerbate cryptocurrencies’ already strained relationship with the US banking system.
As a side effect, the already thin liquidity in the Bitcoin and crypto markets could also be further hampered. As NewsBTC reported, Bitcoin liquidity has fallen to a 10-month low as market makers lost access to USD payment rails.
According to the asset manager, it is worth looking at the CFTC’s case against BitMEX and its founder. In August 2021, a federal court ordered BitMEX to pay $100 million for illegally operating a cryptocurrency trading platform and money laundering violations.
Arthur Hayes, Benjamin Delo, and Samuel Reed were ordered to pay civil fines totaling $30 million. They were also barred from committing further violations of the Commodity Exchange Act (CEA) and CFTC regulations.
As per Cumberland the industry “emerged from that tumult with clearer guidelines, increased exchange reliability, and the consequent investor confidence to send the price of BTC +700%,” adding:
The same seems likely to play out with Binance, albeit on a slower timeframe. At the expense of an increase in short term volatility, confidence-bolstering regulation and fairer industry standards should be the long term result.
One indication of the regulatory clarity to come is the CFTC’s finding that “BTC, ETH, LTC and at least two fiat-backed stablecoins” are commodities.
Bitcoin And Crypto Ahead Of A Regime Change
Just a week ago, Cumberland wrote that crypto is facing a “regime change in the market” due to the BTFP (Bank Term Funding Program) and the Federal Reserve’s expansion of swap operations with five other central banks.
“The flow we are seeing on the OTC desk is reflecting the new reality. It has been extremely focused in BTC and ETH, and we’re seeing very little profit-taking, despite the fact that BTC is up 70% on the year; our flow ratio right now shows roughly twice as many buyers as sellers,” Cumberland wrote via Twitter.
At press time, the Bitcoin price stood at $26,966, still digesting the Binance news from yesterday.
Featured image from The Wall Street Journal, chart from TradingView.com