crypto crackdown: SEC is cracking down on crypto: Should the industry be worried?


The US Securities and Exchange Commission (SEC) has filed separate lawsuits against Binance and Coinbase alleging securities law violations. The charges claim that Binance violated regulations by allowing US customers to trade despite a ban, and that Coinbase engaged in securities trade without sufficient registration, operating as an unregistered broker and exchange.

crypto crackdown: SEC is cracking down on crypto: Should the industry be worried?  0 On Monday, following months of discussions, threats, and warnings, the US Securities and Exchange Commission (SEC) sued Binance, the world’s largest crypto exchange. The next day, the SEC sued Coinbase, alleging misconduct by America’s largest crypto exchange. The SEC’s actions against both Binance and Coinbase were not entirely unexpected, given the signals (threats, warnings) from the SEC in recent times. However, what took the markets by surprise was the SEC’s decision to go after both exchanges simultaneously, which intensified the impact of its actions.

What are the charges?
Binance and its founder, Changpeng Zhao, are alleged to have violated securities laws by allowing U.S. customers to trade on, despite the ban on US-based users, commingling billions of dollars in violation of regulations. Coinbase has been accused by the SEC of participating in the securities market without proper registration and operating as an unregistered securities exchange, broker, and clearing agency.

One intriguing point is that the SEC did not mention Ethereum (ETH) in its lawsuits against Binance and Coinbase. This omission could be attributed to the fact that the Commodity Futures Trading Commission (CFTC) has already classified ETH as a commodity and not a security. The CFTC’s declaration regarding Ethereum’s status may have influenced the SEC’s approach in these particular lawsuits. This demonstrates the complexity and interplay between different regulatory bodies when it comes to determining the classification of cryptos.

The obvious question is whether traders or investors should worry. In one word, no. For companies involved in financial services and banking, lawsuits and settlements are common occurrences and are considered par for the course. Prominent banks like Bank of America, JPMorgan Chase, BNP Paribas, HSBC and Citigroup have faced substantial penalties for various transgressions amounting to billions of dollars. Bank of America for instance, has been penalised a whopping 60 billion dollars.

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So what happens now?
When faced with regulatory action from the SEC, companies typically have two paths to choose between a settlement or fighting the case in court. In a similar case, the SEC filed a lawsuit against Ripple in December 2020, alleging that the sale of its XRP token represented an unregistered securities offering. That case has been in the courts for years with no sign of resolution. Both Coinbase and Binance have clearly said that they will fight to the bitter end. This could be a lengthy process, with litigations often spanning several years.

How will this affect crypto? Crypto analyst Will Clemente from Reflexivity Research recently highlighted the fact that 86% of all crypto trading volume occurs outside of the United States. This statistic is interesting because it suggests that regardless of the regulatory outcomes within the United States, it is unlikely to impact the international adoption of these assets. In fact, if there is any harsh regulatory action in the U.S., it may actually accelerate the adoption of these assets outside the country. This could lead to more individuals and companies moving offshore and embracing these assets, recognizing their international nature rather than being limited to U.S.-based assets.

The good news is that we will now get an answer to the question of what constitutes security in crypto. The courts will hear arguments from both sides and will ultimately determine whether these assets are securities or not. This will bring much-needed clarity to the crypto industry.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of crackdown: SEC is cracking down on crypto: Should the industry be worried?  1crypto crackdown: SEC is cracking down on crypto: Should the industry be worried?  2Saturday, 10 Jun, 2023Experience Your Economic Times Newspaper, The Digital Way!Read Complete Print Edition »

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    Updated: 06/10/2023 — 03:00

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