SEC’s War on Crypto: Coinbase and Binance in Crosshairs

Envisioning your daily drive to work without any traffic lights or stop signs, allowing you to cruise effortlessly. Unexpectedly, a red stop sign is put up, transforming a major junction into a four-way stop abruptly. That night, a letter from the police surprises you with a hefty penalty for all the times you drove past the site of the new sign.

The United States Securities and Exchange Commission’s lawsuits against Coinbase and Binance are encapsulated by this seemingly absurd analogy.

The SEC throws a one-two punch

The SEC has brought lawsuits against the two companies, claiming that they ran exchanges without registration and sold securities without registration. In the case against Binance, it is alleged that there were unethical practices such as internal wash trading and self-dealing to make trading volumes appear higher than they actually were.

Gary Gensler is disadvantaging the small investors for the benefit of Wall Street.

The SEC is asserting that Binance.US is not independent from its parent company, Binance International, implying that the latter has significant influence over the U.S. branch, which could give the agency jurisdiction over the wider Binance International organization.

The SEC has labeled multiple products listed on the U.S. platform as securities, such as Binance’s BNB (BNB), BUSD, BNB Vault, and Simple Earn programs. The SEC’s action against Binance, in light of these claims, implies that the firm is disregarding regulations and mishandling customers’ funds.

Coinbase: The rule follower?

On the other hand, Coinbase has generally followed the rules, even becoming a publicly listed, regulated U.S. exchange. Nevertheless, the SEC’s lawsuit claims Coinbase is functioning as an unregistered exchange, broker, and clearing agency. The SEC believes certain tokens and staking programs Coinbase offers are unregistered securities. Additionally, the SEC contends that Coinbase’s noncustodial digital wallet is similar to providing a brokerage service.

The SEC’s designation of certain tokens as securities implies a changing attitude towards viewing most cryptocurrencies, apart from Bitcoin (BTC) and perhaps Ether (ETH), as securities. Despite these claims, Coinbase, renowned for its adherence to regulations and transparency, intends to challenge these claims in court.

The road ahead

The SEC’s legal action against Coinbase and Binance has led to important queries about the SEC’s motives and the destiny of crypto. Nevertheless, some think the SEC is unlikely to succeed in the lawsuit against Coinbase because of a major problem: SEC Chair Gary Gensler’s acknowledgment that the SEC does not have the congressional authority to control crypto exchanges.

Brian Armstrong, CEO of Coinbase, is certain that Coinbase will prevail in the face of the SEC’s action, citing the company’s attempts to gain regulatory understanding as evidence of unfairness. In a recent interview with the Wall Street Journal, he remarked:

“It would not be seen as a favourable situation by a jury or a judge for the SEC that a company had formally asked them for clarity, had met with them 30 times, had developed their own internal framework with the assistance of the best lawyers, yet had never received any feedback from the SEC before the enforcement action was taken. This is not seen as fair and is not beneficial for America.”

This legal dispute could take a long time to settle. It would be beneficial if Congress created explicit laws concerning digital asset markets. Recently, Representatives Patrick McHenry and Glenn Thompson proposed a framework for digital asset markets, hoping to bring regulatory understanding, encourage invention, and safeguard customers. This could be a major shift.

It is misguided for crypto enthusiasts to focus on Gary Gensler.

The SEC’s measures could lead to crypto firms leaving the US, reducing the trust of domestic consumers in crypto. This could open the door for other countries like Hong Kong, Dubai, Singapore and the UK to draw in crypto innovation and investment.

In the short-term, crypto stocks, altcoins, and U.S.-based crypto startups may experience a decline in value. Investors may then shift their investments to Bitcoin or stablecoins. In the long-term, exchanges may be wary of dealing with U.S. customers and providing access to what the SEC has identified as securities. For example, Robinhood has stated it will remove tokens for Solana, Cardano, and Polygon after the SEC labeled them as securities.

Crypto fights back

Crypto investors and companies can oppose these accusations and advocate for a more crypto-accommodating regulatory framework. They can offer assistance to advocacy groups like Coin Center, Coinbase, and the Digital Freedom Alliance, which are striving for rules that nurture invention and safeguard investors.

Reaching out to local congressional representatives to voice worries regarding the current unfavorable regulations regarding crypto is also a form of advocacy.

Ohio Congressman Warren Davidson is one of the representatives who are promoting crypto, having submitted the SEC Stabilization Act and the #FireGaryGensler campaign gaining popularity on Twitter.

The SEC’s lawsuits against Coinbase and Binance mark a significant turning point, but also offer the crypto community a chance to speak up for their rights and help shape the future of crypto in the U.S. We must take advantage of this.