Bitcoin drops after CFTC sues crypto exchange Binance for allegedly breaking trading rules

Cryptocurrencies dropped on Monday morning after the CFTC sued Binance, the biggest crypto exchange in the world, for allegedly violating trading rules.

The price of bitcoin slid 3.5% to $26,883.11, according to Coin Metrics. Ether fell 3.3% to $1,708.78.

In a court filing, the CFTC, or the Commodity Futures and Trading Commission, said Binance violated eight provisions of a commodities trading law “designed to prevent and detect money laundering and terrorism financing.” The lawsuit, which was filed Monday in a federal court in Chicago, has the potential to upend the exchange’s operations.

“Many knew Binance had a bullseye on its back, but this is still unnerving some crypto traders,” said Ed Moya, an analyst at Oanda. “Binance’s success is needed to ensure a good part of the cryptoverse can grow.”

The news is the latest chapter in this year’s regulatory crackdown on crypto businesses, which has been a significant price catalyst for bitcoin and helped it diverge from its previously high correlation with stocks.

Bitcoin is still on track to cap a winning month. It’s advanced 16% in March, while ether has gained 6%.

—CNBC’s Rohan Goswami contributed reporting