If you’re not following all things crypto you might have missed that the Securities and Exchange Commission (SEC) recently filed lawsuits against two of the world’s two largest crypto exchanges, sending ripples throughout the entire industry. The implications of these lawsuits will undoubtedly shape the future of digital assets in the U.S., so we’re going to take a deep dive into what’s going on and why it’s important.
The SEC’s complaints
So, what exactly are the federal agency’s complaints? In short, the companies had not registered their exchanges and were offering the sale of unregistered securities. The agency argued that all business activity from these crypto platforms should go through them and regulation would fall under their purview.
For a while, the crypto industry has operated like the wild west with regulators taking a hands-off approach, but those times are looking to be long over, and The Fed is stepping in to try and reign in crypto’s wild horse.
Why is this happening now?
To understand why this is happening now we need to flip back to another chapter of the crypto’s storybook. In November of last year, FTX the second largest crypto exchange at the time collapsed, in part due to its close relationship with Alameda Research, a hedge fund also owned by FTX’s CEO Sam Bankman- Fried. Reporting from CoinDesk found that a large portion of FTX’s balance sheet contained FTT a token created by FTX which stoked doubts about the company’s funds and financial viability.
Eventually, the company filed for Chapter 11 bankruptcy and customers tried to recover billions in lost funds. Crypto took a reputational hit, and the SEC, put in place to protect investors, probably realized that it had dropped the ball. The agency has tended to act retroactively to address these consumer threats, so it’s no surprise that crypto is now under its microscope.
Binance
The SEC’s action against the world’s largest crypto exchange didn’t come as a surprise after it was served its Wells Notice, and on June 5th was formally charged.
Today we charged Binance Holdings Ltd. (Binance); U.S.-based affiliate, BAM Trading Services Inc., which, together with Binance, operates https://t.co/swcxioZKVP; and their founder, Changpeng Zhao, with a variety of securities law violations.https://t.co/H1wgGgR5ir pic.twitter.com/IWTb7Et86H
— U.S. Securities and Exchange Commission (@SECGov) June 5, 2023
It’s important to note that Binance’s lawsuit is more serious than Coinbase’s in that it also names the company’s CEO Changpeng Zhao “CZ” for mishandling and commingling customer funds (we’re having FTX flashbacks).
Binance responded immediately saying that they were “disappointed” that the SEC had decided to act against them. They vehemently denied all claims and reiterated that they would continue to fight for their business and the industry while working with regulators.
Coinbase
Coinbase the largest cryptocurrency exchange based in the U.S. was the next to formally receive its charges, but similar to Binance had been prepared. The company released a formal statement stating that it would be cooperating with regulators and reaffirming its commitment to the solid business practices that allowed it to become a publicly traded company in 2021.
The company’s CEO Brian Armstrong has been incredibly vocal about how the lack of regulation in the U.S. has made it difficult to operate, and in a blog post announced that Coinbase had secured a regulatory license to operate from Bermuda.
What happens next?
Since the charges against Binance and Coinbase were filed, crypto.com also announced that it would be shutting down its U.S. Institutional Services due to the “current market landscape.” Begging the question, has the U.S. regulatory climate become too hostile to crypto, and will other companies follow Coinbase’s lead to offshore?
The industry can all agree that crypto regulation is needed and will help avoid the next FTX-type meltdown. However, Binance and Coinbase have been operating for years under murky crypto regulatory policies at best. So, the SEC will need to make a strong decision and decide where it wants to lead the industry. Both crypto titans have indicated that they are fully complying and open to working with regulators, essentially “just tell us what to do, and we’ll do it.”
While we may not have answers for a while, hopefully, further regulatory clarity will help boost consumer confidence in crypto once more.
What should you do?
All in all, consumers are being urged to withdraw their cash from Binance, Coinbase, and all other exchanges. This is the best thing that you can do now in order to protect your funds.
