In a recent turn of events, the US Securities and Exchange Commission (SEC) sued two of the most prominent cryptocurrency exchanges, Binance and Coinbase (COIN). The SEC accused both platforms of operating unregistered exchanges and offering the sale of unregistered securities¹. This news sent shockwaves through the crypto industry and raised questions about the future of these exchanges and the assets they trade.
The SEC’s Accusations
According to the SEC, Binance and Coinbase have been operating unregistered exchanges and offering the sale of unregistered securities, including Binance’s own exchange token, BNB, and stablecoin BUSD¹. In response to these accusations, Binance.US announced the removal of select trading pairs that will impact certain BTC, USDT, and BUSD advanced trading pairs as well as pause its Over The Counter (OTC) Trading Portal.
Meanwhile, the regulator detailed “a non-exhaustive list” of more than a dozen cryptocurrencies in its lawsuit against Coinbase. These cryptocurrencies include Cardano (ADA), Polygon (MATIC), Solana (SOL), Near (NEAR), Internet Computer (ICP), Sandbox (SAND), Axie Infinity (AXS), Flow (FLOW), Filecoin (FIL), Nexo (NEXO), Chiliz (CHZ), Dash (DASH), and Voyager (VGX). According to the SEC, these cryptocurrencies should have been registered as securities.
The Impact on Affected Assets
The SEC’s lawsuit against Binance and Coinbase has had a significant impact on the affected assets. In the aftermath of the regulatory crackdown, the crypto market experienced a volatile week. As of writing, Bitcoin is trading at $26,430 and Ether at $1,845, while the total market cap stands at $1.147 trillion.
Meanwhile, the SEC’s list of digital tokens deemed unregistered securities spans more than $100 billion of crypto. But how are these assets performing ever since the regulator’s charges became public? It’s difficult to say for certain without conducting further analysis.
One immediate impact of the lawsuit was a significant drop in Coinbase’s shares and other crypto-related stocks. This indicates a wider market concern over increased scrutiny. The SEC’s actions have also unified the crypto industry, with many professionals across the sector responding to the recent events.
Kristin Smith, the CEO of the Blockchain Association, stated that while the SEC’s approach to regulation is expected due to its anti-crypto stance, it’s still “unacceptable.“ She believes that by listing assets this way, the SEC is trying to circumvent formal rulemaking processes and deny public engagement2.
Paolo Ardoino, the chief technology officer of stablecoin issuer Tether, believes companies’ complaints against the SEC should be listened to. According to Ardoino, the uncertainty of rules and guidance in the U.S. is becoming a common theme, even among the country’s biggest crypto supporters.
Overall, it’s clear that the SEC’s lawsuit against Binance and Coinbase has had a significant impact on affected assets and has raised concerns within the crypto industry.
A Closer Look at Binance
Binance is one of the largest cryptocurrency exchanges in the world. Through its online platform, it offers simplified avenues for buying and selling cryptocurrencies and other digital assets in exchange for small fees. Last year its trades accounted for up to 70% of the market with billions of dollars pumped through the exchange every day.
In 2019, Binance was facing a regulatory crackdown in the US over a number of potential violations. In response, it restricted access to its main exchange –Binance.com – in the US and launched a new business: Binance.US. Binance.US offered fewer crypto and digital assets than its parent company – but crucially, it was billed as an entirely separate exchange that was run independent of Binance.com. Binance.US would be subject to US regulations and therefore be able to operate legally within the country.
Among the central allegations from the SEC is that Binance and Zhao failed to truly split the US company from the US exchange that it was spun off from. Binance.US says that from 2019 its customers were restricted from transacting on Binance.com. However, the SEC alleges that in reality, Binance and Zhao “subverted their own controls to secretly allow high-value US customers to continue trading on the Binance.com platform”.
A Closer Look at Coinbase
Coinbase is another major player in the cryptocurrency industry. It is one of America’s largest cryptocurrency exchanges⁵. The SEC has accused Coinbase of operating as an “unregistered broker … an unregistered exchange … and an unregistered clearing agency” in violation of US securities regulations.
According to the SEC, Coinbase has been defying the regulatory structures and evading the disclosure requirements that Congress and the SEC have constructed for the protection of the national securities markets and investors⁵. Paul Grewal, the chief legal officer and general counsel of Coinbase, said that the SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance.
The Future of Crypto
The SEC’s lawsuit against Binance and Coinbase raises questions about the future of crypto. If the SEC prevails in either case, it could transform the cryptocurrency industry. The SEC appears bent on a wider crypto crackdown, prompted by concerns over potential violations of securities laws.
In light of these developments, it’s important for investors to stay informed and keep an eye on how these events unfold. The future of crypto is uncertain, but one thing is for sure: it will be interesting to watch.