Author: BlockBeats
Eleven years after the Winklevoss twins first applied for a Bitcoin spot ETF, the Bitcoin spot ETF was approved for listing and trading by the U.S. Securities and Exchange Commission (SEC) in the early morning of January 11, 2024. The Ethereum spot ETF is also just one step away from going online.
However, as the cryptocurrency market develops, regulators' attention to market compliance and transparency is also increasing.
In March 2023, the U.S. Commodity Futures Trading Commission (CFTC) filed charges against Binance and its founder CZ, accusing them of violating the Commodity Exchange Act (CEA) and CFTC regulations. In November 2023, Binance reached a settlement with the CFTC, which took 8 months. Binance agreed to pay a total of $2.85 billion in fines and promised to comply with relevant regulations. Among them, $1.35 billion was the transaction fees obtained by Binance for non-performing assets, $1.35 billion was a fine, and the remaining $150 million was a civil penalty borne by CZ.
After Binance reached a settlement with the CFTC, KuCoin became the next target of the CFTC.
KuCoin may settle with CFTC soon
On March 26, 2024, the CFTC charged KuCoin with violating multiple provisions of the Commodity Exchange Act (CEA) and CFTC regulations. This is another important case after Binance, and the difference between the two cases happens to be exactly one year.
Both Binance and KuCoin have been accused of violating the U.S. Commodity Exchange Act and CFTC regulations, but the specific charges differ.
The CFTC has filed multiple charges against Binance and CZ. Specifically, the CFTC charged Binance and its operating companies with violating the Commodity Exchange Act and CFTC regulations. In addition, Samuel Lim, Binance’s former chief compliance officer, was also charged with aiding and abetting these violations.
KuCoin faces charges mainly involving illegal over-the-counter commodity futures trading, failure to effectively supervise its business and failure to implement customer identification procedures (KYC). Compared with Binance's charges, the CFTC's charges against KuCoin focus more on operations and compliance, without mentioning deliberate evasion of regulation.
Information disclosed by the CFTC shows that Binance's charges are more comprehensive, involving deliberate circumvention of the law and systematic guidance of customers to circumvent regulation. In contrast, KuCoin's case is relatively minor, and may be a violation caused by negligence or mismanagement rather than premeditated violations of the law. Neither party's charges involve user funds.
In May 2024, the U.S. Commodity Futures Trading Commission (CFTC) issued a statement saying that Falcon Labs, Ltd., an institutional digital asset broker headquartered in Seychelles, reached a settlement with the CFTC for failing to register as a futures commission merchant (FCM) in accordance with regulations. Falcon Labs will pay approximately US$1.2 million in illegal gains and a civil penalty of US$600,000.
If we take the cases of Binance and Falcon Labs as precedents, despite facing charges, KuCoin’s case is relatively minor, mainly due to operational and management issues, and there is no deliberate evasion of regulation. KuCoin may pay a fine and reach a settlement with the CFTC in the short term.
Short-term negative, long-term positive
Founded in 2017, KuCoin is one of the world's largest crypto trading platforms. According to CoinMarketCap data, KuCoin ranks seventh in the world in both crypto asset spot and derivatives trading.
After being sued by the CFTC, the total assets of KuCoin platform experienced a net outflow in the short term, but then gradually stabilized. According to CMC data, the total assets of KuCoin platform are currently about 4.6 billion US dollars. The latest proof of reserve (PoR) released by KuCoin shows that the value of BTC, ETH and stablecoin assets on the platform exceeds 2.5 billion US dollars. The reserve ratio of BTC and ETH reaches 115%, and the reserve ratio of USDT and USDC is 109% and 120% respectively, which exceeds the user's assets and can be fully redeemed.
A similar situation also occurred on Binance. Although the platform was also sued by the CFTC and experienced a brief outflow of funds, it can be seen that after reaching a settlement with the CFTC, Binance's total platform assets reached US$120.2 billion, a record high.
Faced with regulatory challenges, KuCoin chose to respond proactively rather than shut down operations such as withdrawals. The platform immediately airdropped a total of $28.95 million in KCS and BTC to users who supported its development. Although KCS experienced a brief plunge after the news fermented, it subsequently rebounded by nearly 45%, and its holders exceeded 2 million, an increase of 4.06% from the previous quarter. Judging from past cases, US regulators have no intention of stifling the crypto industry and its companies, but more to ensure the long-term health and sustainability of the industry while protecting participants from unnecessary risks.
According to CoinGecko statistics, more than half of the crypto companies that have been sued by U.S. regulators and have settled for more than 10 million U.S. dollars are still operating normally, including Telegram (Ton), which is now ranked in the top ten of all crypto assets by market value, Coinbase, the largest compliant crypto trading platform in the United States, and Tether, the world's largest stablecoin issuer.
According to public statistics, as of March 2024, the total number of registered users of KuCoin was close to 32 million, an increase of 4.32% from the previous quarter. Among them, the growth of users in Latin America was particularly significant, reaching 16.26%, the Middle East and Africa increased by 11.29%, and Europe increased by 6.98%. In the first quarter of 2024, KuCoin’s spot trading volume increased by 121.85% year-on-year, with the Middle East and North Africa (MENA) region growing by 263.91%. These data show that KuCoin’s services are gaining widespread recognition and popularity around the world.
Although KuCoin is currently facing a CFTC lawsuit, which may have a certain impact in the short term, judging from its latest corporate data and business strategy, this incident will not have a significant negative impact on its existing business in the long run. On the contrary, this may be an important step for the crypto industry to move towards compliance, paving the way for attracting more traditional funds to enter the market. Compliance will bring more opportunities to the crypto industry and promote its healthier and more sustainable development.
Farewell to the era of wild growth
In the early stages of development of any industry, the wild era is often inevitable, and the cryptocurrency industry is no exception. Along with the rapid development, there is high market volatility and frequent regulatory disputes.
This phenomenon is not unique to the crypto industry. In the traditional financial industry, Bank of America has been sued 156 times and paid more than $41 billion in fines, while Goldman Sachs has been sued 58 times and paid $13.1 billion in fines. History shows that even the most mature financial institutions will face challenges from regulation.
KuCoin's prosecution by the CFTC may mark an important turning point in the crypto industry. The era of wild growth is coming to an end, and a new era of compliance is coming. The approval of the Bitcoin spot ETF has accelerated this process. This transformation is an inevitable trend in the development of the industry. Only through compliant operations and market norms can more traditional funds be attracted to participate.
The crypto industry is undergoing a transition from wild growth to compliant operations. For companies such as Binance and KuCoin that have encountered challenges in the compliance process, this is more like a pain. However, these challenges are not only obstacles to the development of the industry, but also a sign of its maturity. After experiencing these pains, the crypto industry can become more robust, attract more attention and participation from mainstream investors, and ultimately achieve healthy and sustainable development of the industry.
