• What is occurring when the Cayman Islands joins worldwide regulatory efforts against Binance?

  • Binance is not registered to operate as a crypto exchange in the British Overseas Territory, according to a press release from the Cayman Islands Monetary Authority (CIMA).

    The Cayman Islands Monetary Authority (the “Authority”) desires to advise the public that Binance, the Binance Group, and Binance Holdings Limited are not registered, licensed, regulated, or otherwise approved to operate a crypto-currency exchange from or inside the Cayman Islands by the Authority.

    In recent weeks, a series of other regulatory bodies have either issued warnings against Binance or, in the instance of Ontario, have prohibited it from functioning inside its jurisdiction.

    As a result, rumors of a campaign against the world’s largest crypto exchange are circulating. However, the discussion on social media has brought to light issues with Binance Leveraged Tokens (BLVTs), which some consider to be flawed financial products.

    This raises the question of what is going on with Binance.

    Is Binance under attack? Four separate financial regulators have issued notices regarding Binance since last week.

    Binance continues to operate in Japan without authorisation, according to the Financial Services Agency (FSA), which issued a warning last Friday.

    The Financial Conduct Authority (FCA) issued a similar notification, stating that Binance is not permitted to engage in regulated activity in the United Kingdom.

    Binance, on the other hand, announced last week that it has pulled out of Canada’s most populous province due to mounting regulatory duties.

    “Unfortunately, Binance will no longer be able to serve users in Ontario.”

    The CIMA letter from yesterday just adds to the debate about why regulatory bodies are cracking down on Binance.

    Some argue that this is done for anti-crypto protectionism grounds. Others argue that this is justified because Binance is to blame for the operation of faulty financial products.

    What’s the deal with BLVTs? Binance Leveraged Tokens (BLVT) are a derivative product that allows investors to have leveraged exposure to an underlying asset. Users can trade BLVTs on the Binance platform in the same way they can trade crypto tokens.

    BLVT trading differs from margin trading in that it allows users to gain exposure to leveraged positions without having to put up any collateral or worry about liquidation. BLVTs, like crypto tokens, might, however, lose their value.

    “…even if there is no risk of liquidation, there are still risks associated with leveraged token positions, including the implications of price swings in the perpetual contracts market, premiums, and funding rates.”

    The price of the Litecoin Down BLVT (LTCDOWN) token moves inversely with the price of Litecoin, as expected given the token’s name.

    LTCDOWN, on the other hand, should have surged higher during the mid-May crash, when Litecoin dropped 50% of its value. But it didn’t; as shown in the graph above, it lost value along with Litecoin.

    Anyone who had LTCDOWN at the time would have lost money unfairly. This appears to be a problem with BLVTs in general, not only LTCDOWN, according to social media.

    Following this, Binance temporarily suspended BLVTs, with the exception of those relating to BTC, ETH, and BNB, owing to higher liquidity in those markets. This was accompanied by a warning:

    “Leveraged Tokens are intended for short-term market wagers, with a predisposition for momentum. Holding Binance Leveraged Tokens (BLVT) for a long time is dangerous, as the token contains some built-in decay in the absence of momentum swings in the position’s favor.”

    With so much focus on BLVTs, are regulators attempting to distance themselves as investors prepare to file legal action?

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