Cayman Islands join global regulatory attacks on Binance, what’s going on?

A Press release of the Cayman Islands Monetary Authority (CIMA) says Binance is not registered to operate as a UK Overseas Territory crypto exchange.

“The Cayman Islands Monetary Authority (the“ Authority ”) wishes to inform the public that Binance, Binance Group and Binance Holdings Limited are not registered, licensed, regulated or otherwise authorized by the Authority to operate any crypto exchange. – Currency from or within the Cayman Islands.

In recent weeks, a slew of other regulators have issued warnings against Binance or prevented it from operating under its jurisdiction in the case of Ontario.

As a result, talks about a campaign against the world’s largest crypto exchange are starting to proliferate. But social media chat also sheds light on issues with Binance Leveraged Tokens (BLVTs), which some see as flawed financial products.

This then begs the question, what is going on with Binance?

Binance under fire?

Since last week, a total of four different financial regulators have published notices referring to Binance.

Last Friday saw the Financial services agency (FSA) issues warning that Binance continues to operate in Japan without authorization.

A similar notice was issued by the Financial Conduct Authority (FCA), in which they said Binance was not authorized to undertake regulated activities in the UK.

While Binance made a statement last week saying it had withdrawn from Canada’s most populous province due to growing regulatory obligations.

“Unfortunately, Binance can no longer continue to serve users based in Ontario.”

While yesterday’s notice of CIMA is only fueling speculation as to why regulators are going after Binance.

Some believe this is happening for anti-crypto protectionist reasons. Others say this is justified because Binance is responsible for operating faulty financial products.

What is happening with BLVTs?

Binance Leverage Tokens (BLVT) are a derivative product giving leveraged exposure to an underlying asset. Similar to crypto tokens, users can trade BLVTs on the Binance platform.

BLVT trading differs from margin trading in that users can gain exposure to leveraged positions without providing collateral or having to worry about liquidation. However, BLVTs, just like crypto tokens, can still lose value.

“… even if you don’t have to worry about liquidation risk, there are still risks associated with leveraged token positions, such as the effects of price movements in the perpetual contract market, premiums and financing rates. “

A look at the Litecoin Down BLVT (LTCDOWN) shows that the price of the token moves in the opposite direction of the price of Litecoin, as expected by its name.

Binance LTCDOWN Chart
Image: TradingView.

However, during the crash in mid-May, when Litecoin lost 50% of its value, LTCDOWN should have gone up. But this is not the case ; the chart above shows that it lost value with Litecoin.

Anyone holding LTCDOWN at that time would have unfairly lost money. According to social media, this seems to be a problem with BLVTs in general, not just LTCDOWN.

Following this, Binance issued a notice temporarily suspending BLVTs, except those related to BTC, ETH, BNB, possibly due to higher liquidity in these markets. A warning accompanied this:

“Leverage tokens are designed for short-term betting on market movements, with a preference for momentum. Long-term ownership of Binance Leveraged Tokens (BLVT) is risky, as the token has some built-in degradation in the absence of dynamic moves in favor of the position.

With so much attention from regulators, are they trying to distance themselves as investors prepare to take legal action against BLVTs?

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