{"id":22171,"date":"2023-06-13T17:26:04","date_gmt":"2023-06-13T21:26:04","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/should-you-be-worried-if-your-crypto-is-in-binance-us-or-coinbase\/"},"modified":"2023-06-13T17:26:06","modified_gmt":"2023-06-13T21:26:06","slug":"should-you-be-worried-if-your-crypto-is-in-binance-us-or-coinbase","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=22171","title":{"rendered":"Should you be worried if your crypto is in Binance.US\u00a0or Coinbase?"},"content":{"rendered":"

One of the first rounds in the clash between the Securities and Exchange Commission and Binance is giving the exchange\u2019s users an uncomfortably close front row \u2014 and it might have them wondering if they should keep their funds or flee.<\/p>\n

The answer boils down to the risk a person can stomach, experts say.<\/p>\n

\n

The SEC has alleged that Binance, the world\u2019s largest cryptocurrency exchange, mishandled customer funds and acted as an unregistered securities exchange. Now the regulator is asking a federal judge to push a pause button that would freeze the assets tied to Binance.US, the company\u2019s exchange for U.S. residents. It\u2019s a legal bid to maintain the status quo while the litigation plays out, SEC lawyers said in court filings.<\/p>\n

The asset freeze is \u201cdraconian and unduly burdensome,\u201d Binance.US lawyers said, adding that the harm would fall on Binance.US customers while effectively putting the platform and related holding companies out of business.<\/p>\n

The lawyers noted in court papers that customers\u2019 crypto assets and fiat currency were secure.<\/p>\n

Binance.US already said it will be pausing U.S. dollar deposits and recurring buy orders as of last Friday. Payment and banking partners are prepared to pause the avenues for people to pull dollars from the exchange as soon as Tuesday. The platform\u2019s ability to accept deposits and process withdrawals \u201cwill be impacted,\u201d it said on Twitter.<\/p>\n

\u201cUntil we secure more stable banking partners, Binance.US will remain a crypto-only exchange \u2013 at least for a time,\u201d Binance.US said in an announcement last week.<\/p>\n

The SEC motion is in front of Washington D.C. District Court Judge Amy Berman Jackson.<\/p>\n

The Binance lawsuit is part of the SEC\u2019s recent one-two punch at the crypto industry. The SEC is also suing Coinbase
\n COIN,
\n +3.64%<\/bg-quote>,<\/span>
\n alleging the publicly-traded company is also operating an unregistered securities exchange, brokerage and clearing agency. <\/p>\n

While the judge decides how to rule on Binance.US assets, crypto investors may be nervous about how to be in control of their assets. Many crypto investors are young, just building their wealth and already seeing warning flags for cryptocurrency.<\/p>\n

FTX was a high-profile exchange that devolved into bankruptcy proceedings last year. Its founder, Sam Bankman-Fried, is facing criminal charges and has pleaded not guilty. FTX is part of a scarred list of crypto lenders and brokerages in bankruptcy.<\/p>\n

\u201cIt\u2019s real easy to get into crypto,\u201d said Mark Hays, senior policy analyst at Americans For Financial Reform, a coalition in support of tighter regulation in the budding space. \u201cWhat people don\u2019t realize, when they do that, because these exchanges are often either unregulated or poorly regulated right now \u2013 and in some cases are resisting compliance \u2013 they don\u2019t have some to the same protections that ordinary investors do when it comes to their funds.\u201d<\/p>\n

Are customer assets safe at Coinbase and Binance?<\/h2>\n

Yes, according to the exchanges. It\u2019s a point they\u2019ve made in public statements and court papers.<\/p>\n

\u201cCustomer assets are safe and secure at Coinbase,\u201d a spokesperson told MarketWatch on Tuesday.<\/p>\n

At Binance.US, \u201ccustomer assets are secure, appropriately segregated, and available to customers,\u201d lawyers said in Monday court filings.<\/p>\n

Coinbase and\u00a0Binance.US\u00a0said they have 1:1 reserves for customer assets. Coinbase\u00a0keeps its client cash in in Federal Deposit Insurance Corporation-insured banks, which protects $250,000 per depositor, per account, according to the company\u2019s website. Larger cash balances go to money market mutual funds, which are conservative and highly liquid,\u00a0Coinbase said.<\/p>\n

Coinbase CEO Brian Armstrong has said the lawsuit against his company is \u201cvery different<\/a> from others out there\u201d because it\u2019s just focused on the definitions of what counts as a security.<\/p>\n

Binance.US said it has worked with custodians to make sure dollar deposits are held in accounts at FDIC-insured banks.<\/p>\n

Others have misgivings. Hays emphasized he wasn\u2019t giving investment advice, but people with money and assets on the exchanges \u201cshould think long and hard\u201d on the question of safety. <\/p>\n

The lawsuits aren\u2019t singling out \u201cbad apples\u201d but are regulator reactions to \u201csystemic\u201d weak spots in the new world of crypto investing, he said.<\/p>\n

Coverage from the Securities Investor Protection Corporation is a good example, he said. SIPC is a nonprofit organization created by federal law in 1970. While not a government agency, the organization steps in to restore missing investor assets when brokerage firm members fail.<\/p>\n

SIPC coverage is up to $500,000 for securities and cash, though the coverage includes a $250,000 limit on cash. The coverage applies when firms liquidate and the coverage is not a protection against market fluctuations or bad investing advice.<\/p>\n

Two things have to happen before coverage applies, explained SIPC President and CEO Josephine Wang. The customers have their money and assets with a member firm, the customer has to be owed \u201csecurities or related cash,\u201d she said.<\/p>\n

\u201cUnder the law creating SIPC, \u2018security\u2019 does not include unregistered investment contracts. Crypto assets generally would be viewed as investment contracts and unless registered with the SEC, they are not securities under the SIPC statute, and therefore, they cannot be customer property,\u201d Wang said.<\/p>\n

Binance is not a SIPC member, Wang said. Coinbase has two broker-dealers that are SIPC members, according to a person familiar with Coinbase. But the company isn\u2019t currently permitted to use them for digital asset securities because it\u2019s awaiting a green light from the Financial Industry Regulatory Authority (FINRA), the person said.<\/p>\n

FINRA is a nonprofit organization overseen by the SEC that supervises brokerage firms.<\/p>\n

What are alternatives?<\/h2>\n

If people are moving digital assets off Binance and Coinbase, where do they go next? The choices are exchanges, holding the crypto in a personal wallet and decentralized finance.<\/p>\n

Binance and Coinbase, along with Crypto.com, are the \u201cmost reputable exchanges,\u201d said attorney Blake Harris, who focuses on asset protection for clients.<\/p>\n

\u201cI\u2019m not going to say that I think that it\u2019s game over for Binance or Coinbase by any means,\u201d he said. But speaking generally, Harris said if people wanted to store their money on exchanges, he wouldn\u2019t necessarily do it all on one exchange.<\/p>\n

Crypto.com did not immediately respond to a request for comment.<\/p>\n

Another option is keeping the cryptocurrency in an offline wallet in what can be called \u201ccold storage.\u201d<\/p>\n

One risk is\u00a0losing or forgetting the codes, passwords and recovery phrases\u00a0to re-access the wallet once the crypto is inside, said Hays. There\u2019s the risk of misplacing it too, he said. Another risk is faulty design\u00a0and coding glitches\u00a0that block access,\u00a0Hays added. Still, Harris said he likes the idea of cold storage \u2013 but with conditions.<\/p>\n

\u201cThere\u2019s a reason banks were invented. People themselves are not great at storing their own money,\u201d Harris said. It could be a move for a tech-savvy investor with less than $10,000 in crypto, Harris said.<\/p>\n

The more crypto an investor is holding themselves, \u201cthe more you become a target of lawsuits, the more you become a target to be robbed.\u201d<\/p>\n

Another option is decentralized finance, or DeFi, which is a peer-to-peer payment system that avoids intermediaries like banks or brokerages. However, there are cybersecurity risks and risks of getting money directed into investments and coins that a person might not want, Hays said.<\/p>\n

Whichever route, Hays said \u201crisk abounds in this space. It\u2019s really just a question of what flavor of risk you are up for.\u201d<\/p>\n<\/p><\/div>\n