In 2023, the U.S. Securities and Exchange Commission (SEC) sued the world’s three largest crypto exchanges – Binance, Coinbase, and Kraken – marking the start of a new era for the unrestrained crypto industry. The lawsuits have raised questions about the future of the crypto market and the regulatory landscape.
Key Takeaways
- The SEC has filed lawsuits against Binance, Coinbase, and Kraken.
- Allegations include operating unregistered exchanges and commingling customer funds.
- The lawsuits have significant implications for the crypto industry.
SEC vs. Binance: Accused of Using Customer Funds
On June 5, 2023, the U.S. SEC filed a lawsuit against Binance for several reasons:
- Running an unregistered exchange and allowing U.S. investors to trade cryptos.
- Selling Binance-owned cryptos BNB and BUSD stablecoin.
- Offering staking and profit-generating programs like BNB Vault and Simple Earn.
- Misrepresenting investor protection controls on the Binance.US platform.
- Not allowing Binance.US to operate independently.
- Concealing efforts to ensure high-value U.S. investors continue trading on Binance.com.
- Using customer’s crypto and fiat assets.
- Engaging in wash trading to inflate trading volume on Binance.US.
The SEC’s allegations against Binance are severe, with accusations of commingling customer funds similar to those made against the now-defunct FTX exchange.
What is Going on with Binance vs SEC?
As of late-November 2023, the lawsuit against Binance remains unresolved. The SEC is investigating whether Binance and its founder Changpeng Zhao (CZ) had a “backdoor” to control assets on Binance.US. The lawsuit is expected to extend into 2024, with Binance agreeing to pay $4.3 billion in fines to settle charges from the Department of Justice (DoJ), Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN). CZ has stepped down as CEO, with Richard Teng taking over.
SEC vs Kraken: Complaints of ‘Commingling’ Filed
On November 20, 2023, the SEC filed a complaint against Kraken, accusing it of operating as an unregistered securities exchange, broker, dealer, and clearing agency. The SEC alleged that Kraken commingled customer funds for operating expenses, despite an auditor identifying it as a significant risk. Kraken has denied the charges and intends to defend itself in court.
SEC vs. Coinbase: “Compliant” Exchange Accused of Non-Compliance
A day after the Binance lawsuit, the SEC charged Coinbase with operating as an unregistered securities exchange, broker, and clearing agency. The SEC also took issue with Coinbase’s staking-as-a-service program and its marketing campaigns. Coinbase has responded by agreeing to register some of its business with the SEC, but the lawsuit is expected to extend into 2024.
Crypto Market Reactions to SEC vs. Exchanges
The cryptocurrency market has shown resilience despite the lawsuits. Bitcoin (BTC) and Ether (ETH) rebounded quickly from initial sell-offs. However, cryptos like BNB, ADA, SOL, MATIC, and ATOM saw selling pressure after being named “investment contracts.” Users on Binance withdrew over $3 billion within 24 hours of the SEC lawsuit, and another $1 billion following the $4.3 billion fine.
What Next for the Crypto Industry?
- Compliant CEX as a crypto on-ramp: Experts suggest that U.S. centralized exchanges may only list Bitcoin and Ether while international exchanges list other tokens.
- CFTC over SEC: The industry prefers regulation by the CFTC rather than the SEC. CFTC chair Rostin Behnam has indicated it could take one to two years to implement cryptocurrency regulations.
Understanding the SEC’s Concerns
The SEC aims to regulate cryptocurrencies like securities, subjecting crypto companies to the same rules as stock market participants. The regulator has started legal proceedings against the three largest crypto exchanges for operating as unregistered exchanges.
The Bottom Line: Crypto Regulations Are Inevitable
Cryptocurrency regulation is inevitable. Unlike China’s abrupt ban, the U.S. offers a chance for fair regulation. With better clarity, crypto exchanges are expected to emerge stronger and safer.
What Is the U.S. SEC?
The U.S. SEC was established in 1934 to restore public confidence in the stock market after the 1929 crash. It ensures that listed companies provide truthful information and regulates brokers, dealers, and exchanges.
What Is Binance?
Binance is the world’s largest crypto exchange, founded by Changpeng Zhao. It operates as Binance.US in the U.S.
What Is Coinbase?
Coinbase, founded in 2012 by Brian Armstrong, is the largest crypto exchange in the U.S. by trade volume. It does not have its own token but plans to launch a blockchain network called Base.
What Is Kraken?
Kraken, founded in 2011, is one of the oldest crypto exchanges. It offers over 200 cryptocurrencies and supports transactions in eight fiat currencies.
Sources
- SEC vs Binance, Coinbase, Kraken Lawsuits Usher Tough New Era, Techopedia.
- Binance, Coinbase head to court; the SEC labels 67 crypto-securities, Cointelegraph.
- The SEC Comes for Crypto – Bloomberg, Bloomberg.
- Full List of Cryptos Named Securities in SEC Lawsuits, BeInCrypto.
- SEC can’t find Binance CEO Changpeng Zhao, asks court for ‘alternative service’ , Cointelegraph.
