Crypto Investors Flee KuCoin Following US 'Criminal Conspiracy' Charges

Customers appear to be abandoning crypto exchange KuCoin en masse after it received back-to-back lawsuits from U.S. government agencies, according to blockchain data compiled by Kaiko Research.

Since March 26, KuCoin’s trading volume and market share have both plummeted, halting its progress as one of the fastest-growing crypto exchanges. According to Kaiko in a Wednesday blog post, KuCoin’s daily volume plummeted from about $2 billion to $520 million, and its market share plunged from 6.5% to under 3%.

Early last week, the Department of Justice (DOJ) accused KuCoin of anti-money laundering (AML) violations, while the Commodities and Futures Trading Commission (CFTC) sued the firm for failing to register its Ethereum margin trading service with the regulator.

In last week's criminal complaint, Darren McCormack, the Acting Special Agent in Charge of the New York Field Office of Homeland Security Investigations, described KuCoin as an "alleged multibillion-dollar criminal conspiracy."

Ever since, crypto investors with assets on the platform have been migrating their funds to either personal wallets or rival platforms, including Coinbase, Binance, OKX, MEXC, and Gate.io. On March 26 alone, outflows from the exchange exceeded $600 million, far outstripping inflows.

Many of those same firms have been subject to similar government lawsuits. Binance, for example, was fined over $4 billion in November for what U.S. regulators described as shoddy know-your-customer (KYC) and AML procedures.

Both Binance and Coinbase now face charges from the U.S. Securities and Exchange Commission (SEC) for allegedly listing unregistered securities on their respective platforms.

The crypto industry—and increasingly, the judicial system itself—has grown skeptical of regulators’ aggressive treatment of digital asset firms, and the basis on which their accusations are often made.

Last month, District Judge Robert J. Shelby blasted the SEC for its “gross abuse of power” and “bad faith” attacks in its lawsuit against Debt Box, after the agency failed to provide evidence that the firm was laundering investors’ money offshore.

Regarding KuCoin, Kaiko said it found no on-chain evidence that the exchange interacted with sanctioned crypto mixer Tornado Cash, as claimed by the DOJ.

“However, all of the funds stolen from KuCoin’s hack in 2020 have been ‘privatized’ using Tornado Cash, representing a significant amount of ETH,” the research firm clarified.

The CFTC’s KuCoin lawsuit also referred to cryptocurrencies including Ethereum (ETH) and Litecoin (LTC) as commodities, providing a potential reprieve for investors fearing the assets could be classified as securities. Litecoin has seen a significant price jump in the days since.

Edited by Andrew Hayward