The big news today is a new federal lawsuit brought by the Commodities Futures Trading Commission that lodges a slew of regulatory violations against Binance. Like FTX, Binance is an offshore crypto exchange with a tamer U.S.-based offshoot that complies with U.S. regulations. The version of Binance available to the rest of the world allows for riskier, more exotic forms of crypto trading. But as of 2020, roughly one-in-six users of the much-larger offshore exchange were Americans who had evaded the ban, according to numbers cited in the complaint. While the exchange’s flamboyant founder, Changpeng Zhao, currently works out of Dubai, the exact location of Binance, and as a result who has authority to regulate it, has been something of a puzzle. Initially based in China, it moved much of its operations to Japan ahead of Beijing’s 2017 crypto crackdown. But Zhao has said in the years since that the company has no particular headquarters, a stance that has served to keep the exchange’s regulatory status murky. The CFTC’s complaint, which cites statements from an internal company meeting in 2019, alleges the practice is an intentional effort to defy legal oversight anywhere, not just in the United States. Well, according to the CFTC, Binance is subject to its legal oversight even though the exchange targeted in the lawsuit is supposed to only operate outside of the U.S. That’s because Binance is allegedly complicit in helping U.S. customers shirk the existing ban on that exchange, including by instructing them to use virtual private networks to disguise their locations. The crackdown on Binance’s alleged role in bringing American customers onto its offshore exchange serves to put a brighter line around the boundaries of U.S. jurisdiction. It’s one of several moves by regulators and financial firms in recent weeks that are nudging the industry towards a future in which there is a clear separation between a regulated crypto sphere in the U.S. and a more free-wheeling offshore version. That would create room for big banks and other established financial institutions that were slow to adopt crypto to get a bigger piece of a more heavily regulated domestic market. Last week, Coinbase, the world’s second-largest crypto exchange, revealed that the Securities and Exchange Commission had notified it of its intent to bring charges as the regulator and the industry face off over which crypto tokens must be registered as securities. Earlier this month, Bloomberg reported that U.S.-based Coinbase is considering the creation of an off-shore exchange to sidestep domestic regulatory risks. With all this legal uncertainty around post-crash crypto, more staid financial institutions are keeping well clear of digital assets, right? Not quite. The asset manager Fidelity rolled out Bitcoin and Ethereum trading to retail customers in eligible U.S. states a couple of weeks ago. And on Friday, Bloomberg reported that Nasdaq is on track to launch a crypto custody service for institutional investors by early summer. There’s a widespread suspicion in crypto circles that the ongoing crackdown is meant to clear the field for the creation of a digital dollar. But Washington’s progress towards a digital dollar has been slow, tentative, and constrained by a patchwork of competing political interests. Instead, one plausible consequence of all of this action is a more bifurcated global landscape in which a Wild West atmosphere continues to prevail offshore, while inside the U.S. established financial players increasingly muscle their way in on a tamer version of crypto. | 
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