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Crypto and SEC Overview: Binance and Coinbase sued over alleged unregistered securities

Daniel Urbánek
Daniel Urbánek
June 16, 2023
News

Stay on top of the latest on the SEC lawsuits against top crypto exchanges Coinbase and Binance. Discover their impacts on the crypto market and the future of crypto regulation.

In an unprecedented move, the U.S. Securities and Exchange Commission (SEC) has filed lawsuits against two of the biggest players in the crypto world, Coinbase, and Binance, accusing them of securities violations. This development has sent shockwaves through the industry and could significantly impact the operations of crypto companies. In this article, we delve into the intricate details of these lawsuits, their implications for the accused parties, the overall reaction in the crypto market, and what these developments could mean for the future of cryptocurrency regulation.

TL;DR:

  • The SEC chairman Gary Gensler has filed lawsuits against crypto exchanges Coinbase and Binance, accusing them of operating as unregistered brokers and securities exchanges.
  • The lawsuits have resulted in significant market reactions, including a decrease in crypto values and company stocks.
  • The legal actions have sparked debate on the need for regulatory clarity in the crypto industry and specific laws for cryptocurrencies.
  • Ongoing legal negotiations with Binance have led to a judge urging for a compromise to prevent operational disruption.

What is Happening between SEC and Crypto?

Under the stewardship of Gary Gensler, the SEC has ramped up its scrutiny of the cryptocurrency industry. Aiming to assert its regulatory power, the SEC alleges that these crypto companies have been functioning without appropriate registrations and have engaged in the offering of unregistered securities. 

The lawsuits against Coinbase and Binance are pivotal in the ongoing discourse over who holds the reins when it comes to cryptocurrency regulation. As of this time, SEC has released a list of crypto assets that are now regarded as securities. The list includes many of the top-ranked assets, such as Solana's $SOL, Polygon's $MATIC, and Cardano's ADA.

However, the accused parties contest these charges, leading to what is likely to be a lengthy legal battle. This event will further contribute to the uncertainty surrounding the crypto sector. Many stakeholders have voiced the need for more explicit regulation and transparency in this industry, calling on Congress to enact tailored legislation for cryptocurrencies.

New Lawsuits

The SEC has initiated major legal actions against Coinbase and Binance, two behemoths of the cryptocurrency space. The heart of these allegations lies in the offering and selling of unregistered securities, an act the SEC maintains necessitates registration with the commission. This potential outcome could reshape the entire crypto industry.

Both Coinbase and Binance are vigorously refuting these allegations, pledging to put up a robust defense. This indicates a hardening stance of the SEC against crypto companies and could potentially set a precedent for how crypto businesses are regulated in the future.

Major Centralized Exchanges Under Scrutiny

Binance

Binance finds itself under the regulatory microscope, accused of mishandling customer deposits and operating as an unlicensed securities exchange. The SEC has also proposed a freeze on Binance's U.S. assets, an action that the exchange warns could bring about operational disruptions and affect its payments to vendors, employees, and suppliers.

A federal judge has urged the SEC to reach a compromise with Binance, underlining the urgency for a swift resolution. This recommendation, if followed, could avert the potentially drastic action of freezing assets, which could spell the end of Binance's operations in the U.S.

Coinbase 

Coinbase, known as one of the most compliant crypto exchanges, faces allegations from the SEC of operating as an unregistered broker and exchange. The SEC also claims that Coinbase offered at least 13 crypto assets that it classifies as "crypto asset securities". The fallout from this lawsuit was immediate: Coinbase's stock fell by 18%, reflecting investor apprehension.

Coinbase CEO, Brian Armstrong, has criticized the SEC for its aggressive enforcement, calling out the lack of clear rules and guidance. Armstrong's actions before the lawsuit, notably selling his company shares, have raised questions and added a layer of intrigue to the unfolding drama.

Crypto Market Reaction

These lawsuits have triggered a significant reaction in the crypto market. We've seen a widespread sell-off, leading to considerable drops in cryptocurrency values and the stocks of the involved companies. The most significant drop occurred among assets that are now considered securities by the SEC ($SOL, $MATIC, $DOT, etc.). Ethereum, while left untouched has also reacted with an immediate drop of almost 8%, oscillating around $1750.

Secondary effects are manifesting as other platforms, such as Robinhood and Crypto.com, adjust their offerings in response to these legal actions, indicating a broader industry response.

Future Prospects

The confrontation between traditional and decentralized finance has been ongoing for quite some time now and it is inevitable in some sense. At times of regulatory uncertainty, we like to remind that crypto was built to operate independently of the traditional financial system, not to be contained in it.

There is a fair amount of misunderstanding happening in the field, especially in the US the regulation of the crypto industry is clearly based on a lack of sufficient knowledge. If the charges against Binance and Coinbase prove valid, we could witness a drastic change in exchange services for US clients if not the end of them.

Granted that the US accounts for a big part of the overall crypto transaction volume, these charges could slow down innovation and negatively impact the price of crypto assets. Major exchanges however operate almost in the whole world, leaving the rest of the clients unbothered.

If this topic interest you, consider comparing the US with the emerging regulation in the EU - namely MiCa. Read more in our EU regulation overview.

Disclaimer: The content of this piece reflects the writer's opinion. This article is not intended to provide financial advice and is meant solely for entertainment and educational purposes. Investing in cryptocurrency involves significant risk. Capital is at risk, and returns are not guaranteed. Always conduct your own research.

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