The US Securities and Exchange Commission (SEC) sued two of the largest companies in the world crypto exchanges – Binance and Coinbase – in June 2023 to usher in a new era for the unrestricted crypto industry.
Which CRYPTOCURRENCIES were they identified as values? And how will the demands affect the market?
In this article, we delve into the lawsuits, as well as look at the market response and the potential future of the industry.
Understanding SEC Concerns
The SEC wants to regulate cryptocurrencies and hold down cryptocurrency companies, brokers, dealers, and exchanges the same way it does the stock market and its participants. However, as cryptocurrencies have only gained prominence in recent years, there is no regulation designed specifically for them.
The SEC seems hell-bent on treating cryptocurrencies as securities. In June 2023, the SEC launched legal proceedings against two of the world's largest cryptocurrency exchanges, Binance and Coinbase, for operating as unregistered exchanges.
SEC vs. Binance: Accused of Using Client Funds
On June 5, 2023, the US SEC. archived to lawsuit against Binance for:
- Run an unregistered exchange and allow US investors to buy, sell and trade crypto;
- Sale of BNB and BUSD cryptocurrencies owned by Binance;
- Offering staking and earning programs called BNB Vault and Simple Earn;
- Misrepresenting how investor protection controls are implemented on the Binance.US platform;
- Not allow Binance.US to operate independently;
- Hiding efforts to ensure that high-value US investors continue to trade on its main platform Binance.com, despite claiming that the company did not allow US citizens to use Binance.com;
- Use the customer's crypto and fiat assets;
- Engaging in laundering trades that artificially inflated the trading volume on the Binance.US platform.
When comparing the SEC's allegations against Binance and Coinbase, the charges against the former seem more serious. The accusations that Binance mixed client funds for its own self-interest are similar to those leveled against now-defunct American crypto exchange FTX and its sister hedge fund Alameda Research.
The US regulator followed up on the Binance Lawsuitfiling a motion to issue a restraining order to freeze assets held by Binance, Binance.US and its founder Changpeng Zhao.
In response to the court case, Binance struck a defiant tone, saying that will defend itself "vigorously". The cryptocurrency exchange disputed the US SEC's approach, drawing attention to the regulator's refusal to engage with the cryptocurrency industry to provide "much-needed clarity and guidance for the digital asset industry."
Binance added that the SEC's priority was not to protect investors, but rather to claim "jurisdictional turf from other regulators" such as the Commodity Futures Trading Commission (CFTC). The company added:
Because Binance is not a US exchange, the SEC's actions are limited in scope. Still, we stand with US digital asset market participants in opposing the latest SEC overreach, and we stand ready to fight it to the fullest extent of the law.
SEC vs. Coinbase: “Compliant” Exchange Accused of Non-Compliance
One day after Binance's lawsuit, the SEC loaded Coinbase with "ooperating as an unregistered stock exchange, broker, and clearing agency.”
The authorities also decided to issue the participation program as a service of Coinbase and marketing campaigns that positioned themselves as a compatible exchange. The SEC said:
For years, Coinbase has touted its efforts to test crypto assets against the standards set out in Howey before making them available for trading. But while paying lip service to its desire to comply with applicable laws, Coinbase has been available for years for trading crypto assets that are investment contracts under the Howey test and well-established principles of federal securities laws.
According to the Howey Test, an "investment contract" exists when money is invested in a common enterprise with a reasonable expectation of profit from the efforts of others.
In response to the lawsuit, Coinbase said that the company had agreed to register "a portion of our business" with the regulator. However, his effort was in vain due to a lack of cooperation from the SEC. The exchange also added that it requested to specifically identify which cryptos on its platforms the SEC believed to be securities, but declined to do so.
Tell us the rules and we'll follow them. Give us a real route to register and we will register the parts of our business that need to be registered. In the meantime, the US cannot afford to have regulators continue to threaten good players in the cryptocurrency industry for doing the same legal and compliant things they have always done.
Crypto Market Reactions to SEC Against Binance, Coinbase
The cryptocurrency market held up pretty well despite the SEC vs Binance and Coinbase headlines. Major currencies Bitcoin (BTC) and Ether (ETH) quickly recovered from the initial selloffs.
Note that the SEC did not mention BTC and ETH as securities in their judgments. However, the cryptos such as BNB, ADA, SOL, MATIC and ATOM saw selling pressure after being dubbed "investment contracts".
Below is a list of cryptocurrencies identified as securities by the SEC:
| Binance Against SEC Lawsuit | Coinbase Against SEC Lawsuit |
| Solana (SUN) | Solana (SUN) |
| Cardano (ADA) | Cardano (ADA) |
| Polygon (MATIC) | Polygon (MATIC) |
| Filecoin (FIL) | Filecoin (FIL) |
| Cosmos (atom) | – |
| Sandbox (SAND) | Sandbox (SAND) |
| Decentralized (MANA) | – |
| Algorand (something) | – |
| Infinite Axie (AXS) | Infinite Axie (AXS) |
| Coti (COTI) | – |
| – | Chilliz (CHZ) |
| – | Flow (FLOW) |
| – | Internet Computer (ICP) |
| – | Close close) |
| – | Traveler (VGX) |
| – | Dash (DASH) |
| – | Nexus (NEXUS) |
Data firm Nansen reported that Binance users withdrew more than $3 billion within 24 hours of the SEC's lawsuit.
In the stock market, meanwhile, Coinbase shares closed down 12% on June 6 on the news.
What's next for the cryptocurrency industry?
The market expects the CFTC to come to its rescue. Cryptocurrency experts are pushing for cryptocurrencies to be classified as commodities and not securities. This would allow cryptocurrency brokers, traders and exchanges to operate without the strict disclosure requirements that companies that trade securities are subject to.
In the wake of SEC lawsuits against Binance and Coinbase, CFTC Chairman Rostin Behnam told the House Agriculture Committee that it would take a year or two to implement cryptocurrency regulations. President Benham noted that “there is confusion” with ongoing crypto regulatory action.
As Reported by BlackworksBehnam suggested that “youThere is a regulatory vacuum here... [and] a gap in regulation over digital commodity assets.”
In an April 2023 report, cryptocurrency experts at Pantera Capital had envisioned a crypto industry in which US crypto companies move overseas as regulators become more aggressive. Pantera Capital said that there may come a time when US centralized exchanges only list Bitcoin and Ether while international exchanges list tokens that cannot be traded in the US, adding:
If you are a US CEX, it makes sense to stop offering non-Bitcoin or Ethereum exchanges on your platform and launch it via a decentralized exchange (DEX).
“This is essentially Coinbase and the launch of their BASE product. Coinbase users can now interact with DeFi in a way that creates less risk for Coinbase,” added Paul Veradittakit, Chia Jeng Yang, and Matt Stephenson of Pantera Capital.
The bottom line: crypto regulations are Inevitable
Regulation of cryptocurrencies is inevitable. There is a silver lining to all the action happening in the US. Unlike in China, where an abrupt and blanket ban on crypto activity was implemented in 2021, there is a belief that the crypto industry might have a chance to get a best deal in the usa
With greater clarity in the regulations, crypto exchanges they are expected to emerge stronger, safer and more acceptable than ever.
What is the US SEC?
The US SEC was established in 1934 after the stock market crash of 1929. In the 1920s, the US economy was booming, leading to an increase in the number of investors and prices of actions. However, there were few regulations in place during that time. Many companies have engaged in dishonest practices by providing false and misleading information to the public. As the economy began to slow towards the end of the decade, the stock market experienced a significant crash in October 1929. This event eventually sparked the Great Depression, a prolonged and severe economic downturn that lasted throughout the 1930s.
To prevent such an event and restore public confidence in the stock market, the US Congress created the SEC. The regulator makes sure that publicly traded companies provide truthful information about their businesses and inform investors about the risk involved in trading their shares. The SEC also regulates brokers, dealers, and exchanges that operate within the industry.
What is Binance?
Binance is the world's largest cryptocurrency exchange, boasting an average daily trading volume of around $65 billion. The company was founded by Changpeng Zhao, also known as CZ. Binance has its own cryptocurrency called BNB, one of the most valuable in the world in terms of market capitalization. The BNB token is used on the Binance blockchain network called BNB Chain.
The company operates as Binance.US in the US.
What is Coinbase?
Coinbase is one of the best-known crypto companies in the world. Founded in 2012 by Brian Armstong, Coinbase has become a household name in 100 countries around the world. Coinbase is the largest crypto exchange by trading volume in the US. Unlike Binance, Coinbase does not have its own token.
In 2023, the company announced that it will launch a blockchain network called Base in collaboration with Ethereum layer two network Optimism.
