Key takeaways
- The U.S. regulatory financial body has sued both Binance and Coinbase, two of the biggest fish in the crypto industry, this week
- Both companies deny running unregistered securities and defying regulatory structures
- Bitcoin dropped 6%, while Coinbase’s share price plunged by 20% at one point during trading
It’s been another dramatic week in the crypto world – and it’s only Wednesday. The Securities and Exchange Commission (SEC) showed it isn’t pulling punches by going after the two most prominent names in the business, Binance and Coinbase, slapping them both with lawsuits accusing them of registered securities violations.
It’s a one-two hit from the SEC, so it’s no wonder crypto dived at the news. But is crypto just down, or is it out for the count now its biggest company is officially under fire? We’ve got the details on the riveting showdown and the market reaction below.
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Why is the SEC suing Binance?
The SEC’s gripes against Binance and its CEO, Changpeng Zhao, are numerous. A court filing accused the top crypto exchange company of secretly sending billions of dollars worth of customer funds between companies controlled by Zhao. There are 13 civil charges in total, including an accusation of Zhao secretly controlling the Binance.US platform, despite claiming to have no involvement in it.
The SEC also charges Binance and its linked entity, BAM Trading Services, with operating unregistered securities. In the SEC’s eyes, the smoking gun is Binance’s former chief compliance officer saying to another colleague over text in 2018, “We are operating as a f****ng unlicensed securities exchange in the USA bro”.
Binance has vehemently denied the accusations. A statement from the company said “while we take the allegations in the SEC’s complaint seriously, they should not be the subject of an SEC enforcement action, let alone on an expedited basis”.
What about Coinbase?
It was Coinbase’s turn the very next day, with the SEC filing a lawsuit against the U.S. crypto exchange accusing it of similar misconduct to Binance. The top financial watchdog claims Coinbase, which holds $130 billion in assets, has been operating unregistered securities and has Coinbase’s staking-as-a-service program in its crosshairs.
In its complaint, the SEC said “Coinbase has for years defied the regulatory structures and evaded the disclosure requirements that Congress and the SEC have constructed for the protection of the national securities markets and investors”.
Coinbase rebutted the claims, saying the SEC’s “reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness” and that the company had demonstrated a commitment to compliance.
The plot thickens as Coinbase’s and the SEC’s relationship, which used to be on okay terms, has soured. In April, Coinbase sued the watchdog in an attempt to get some answers around legalizing crypto securities.
The SEC’s crackdown on crypto
The SEC has been very busy trying to regulate the crypto sector after the fallout from FTX’s collapse, where crypto wunderkind Sam Bankman-Fried now stands accused of fraud and misleading investors.
Since then, the regulator has launched over 30 crypto-related enforcements, leaving the sector quagmired in litigation. One of the biggest clashes was the SEC suing crypto trading groups Genesis Capital and Gemini over their crypto lending scheme, which the SEC said should be registered as a security. The two companies had already suffered from the FTX fallout, with customers unable to withdraw funds.
A month later, it brought a claim against stablecoin operator Terraform Labs and its CEO Do Kwon for defrauding investors using its TerraUSD stablecoin and the ill-fated Terra Luna coin. Even Kim Kardashian felt the sharp end of the regulatory body, as the SEC slapped the reality star with a lawsuit for not disclosing the payment she got for touting EthereumMax’s EMAX tokens. Kardashian paid a $1.26 million fine.
In an interesting twist, some now predict that crypto trading company Ripple may win its case after the SEC sued the business in 2020 for operating unregistered securities with its XRP token. A win for the crypto sector would have widespread ramifications for the other ongoing cases.
But the latest two cases against arguably the biggest names in crypto, Binance and Coinbase, sends a message that the SEC isn’t resting until it’s gotten to the bottom of the situation.
How have crypto prices reacted?
Bitcoin, the global leading crypto, plunged 6% at the Binance news and hit lows of $25,440 after showing a promising rally towards $30,000 last week. It showed signs of recovery on Wednesday, gaining 3.5% in 24 hours. As for BNB, the crypto Binance owns, its price dropped 5% after the news dropped.
Other notable cryptos were down across the board before making back some recovery. Ethereum is currently down 2.59%, Cardano has fallen 4.71% and Polygon has seen a 4.34% loss. Memecoins have been a mixed picture this week, with Dogecoin gaining 1.88% in the last 24 hours and Shiba Inu shedding 0.79% in value.
Coinbase’s share price is now down 12% due to the SEC lawsuit, at one point plunging 20% during trading. That hasn’t stopped investors from buying up the dip, with professional investing fund ARK Invest adding 400,000 Coinbase company shares to its portfolio.
The bottom line
Crypto has always been a volatile and, at times, crazy market to invest in. From the SEC’s point of view, it’s trying to root out the bad actors in the industry – and from the crypto companies’ perspectives, there isn’t enough legislation for the SEC to go on and it’s killing off the US crypto market.
Whatever happens, the current situation leaves the crypto market’s reputation under a shadow and questions the industry’s ability to become truly mainstream. Until there’s further clarity or regulation in the US around digital assets, expect the lawyers to have a field day while the SEC continues its war against crypto.
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