Is it still safe to invest in crypto in the U.S.?

On Monday, the SEC charged Binance and its founder Changpeng Zhao with 13 securities law violations, alleging that the exchange “secretly allow[ed] high-value U.S. customers” to trade on the platform, breaking U.S. securities laws.

A day later, the SEC charged Coinbase for illegally operating an unregistered securities exchange, brokerage, and clearing agency.

What does this mean for investors and is it still safe to invest in crypto in the U.S? I spoke to two lawyers to find an answer. You can read more below.

You can find me on Twitter at @anu__dave to share any thoughts on crypto, this newsletter, or your personal stories with digital assets.

Is it still safe to invest in crypto in the U.S.?

After the crackdowns this week, Paul Grewal, Coinbase’s Chief Legal Officer said that the “SEC’s reliance on an enforcement-only approach in the absence of clear rules for digital asset industry is hurting America’s economic competitiveness.” Some investors wondered if their crypto is safer oversees than in the U.S. and whether there would be be any personal legal consequences for continuing to use these exchanges.

I spoke to Adriaen Morse, a partner at SECIL Law PLLC in Washington, DC. He has handled securities litigation and enforcement actions both in the United States and globally. Morse says, that while the SEC is going to continue going after cryptocurrency producers, “it’s no more or less safe than investing in any cryptocurrency ever has been in terms of the value and so forth.”

“You’re not in legal trouble. The SEC is going to claim that you’re a victim. And if you’re required to – for tax purposes declare profits or losses – then you’d probably have a loss with respect to the securities that are implicated.”

At the same time, Morse notes that while Coinbase has tried to comply with the law, the SEC has made it very difficult. “They’ve progressed from going after clear frauds in the 2017 to 2018 timeframe, and they’ve built up this body of settled cases and criminal actions against true frauds….now they’re going after legitimate businesses that are trying to comply with the law by pretending that the underlying asset is a security. And so, in that sense, it’s not safe, because there’s a hell of a lot of litigation risk from the SEC.”

Right now what’s happening is a mismatch between the business model of the company, versus what the SEC has decided what the business model must be, said Cory Kirchert, a partner at SECIL Law PLLC, whose practice focuses on accounting, auditing, and financial regulation. “For the first time in history, the tail’s wagging the dog, the regulators coming in and saying ‘oh no no, you’re not selling a product, you are selling a right against to either receive payments as a bond or a right to a piece of the company as equity.”

Binance and Coinbase either need to make these debt securities, “or you go out of business,” said Kirchert. “That’s basically what it is and that’s why it’s a shut down operation.”

Earlier this week, analysts said that crypto prices are unlikely to see an “existential threat” due to the Coinbase and Binance crackdown, even after a majority of cryptocurrencies extended a decline on Wednesday.

Gensler Takes on Crypto Critics

In a speech on Thursday, SEC Chairman Gary Gensler doubled down on his belief that noncompliance in the crypto industry is widespread, despite facing criticism this week after his agency sued Binance and Coinbase. In prepared remarks, Gensler said that “registration is not just a process issue,” adding that “failure to register isn’t just a foot fault in a tennis game. It’s core to providing the investing public and our markets with basic protections.”

You can read the full story by Chris Matthews here.

Crypto in a snap

Bitcoin
BTCUSD,
-0.42%
is down 2.30% this week, and trading at $26,516 as of Thursday afternoon, according to CoinDesk data. Ether
ETHUSD,
-0.73%

ETHE,
-0.74%
is down 1.42% this week, trading at $1,845 as of Thursday afternoon, also based on CoinDesk data.

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