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. This article delves into the lawsuits, market responses, and the potential future of the industry.
Key Takeaways
- The SEC has filed lawsuits against Binance, Coinbase, and Kraken for various regulatory violations.
- The lawsuits have significant implications for the crypto industry, including potential changes in how cryptocurrencies are regulated.
- Market reactions have been mixed, with some cryptocurrencies experiencing sell-offs while others have remained stable.
SEC vs. Binance: Accused of Using Customer Funds
On June 5, 2023, the U.S. SEC filed a lawsuit against Binance for several violations, including running an unregistered exchange, selling Binance-owned cryptos BNB and BUSD stablecoin, and using customer funds. The SEC is investigating whether Binance used U.S. customer funds similarly to the now-fallen FTX exchange.
Binance has responded by filing a motion to dismiss the lawsuit. The case is expected to extend into 2024, with Binance agreeing to pay a $4.3 billion fine to settle charges from the U.S. Department of Justice (DoJ), Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN). This settlement led to the resignation of Binance CEO Changpeng Zhao, 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 this as a significant risk.
Kraken has denied the charges and intends to defend itself in court. This is not the first time Kraken has faced SEC action; in February 2023, it agreed to cease its crypto staking services and pay $30 million in fines.
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 that positioned it as a compliant exchange.
Coinbase has responded by agreeing to register some portion of its business with the regulator, but claims the SEC has not cooperated. The case is expected to extend into 2024.
Crypto Market Reactions to SEC vs. Exchanges
The cryptocurrency market has shown resilience despite the SEC lawsuits. Bitcoin (BTC) and Ether (ETH) rebounded quickly from initial sell-offs. However, cryptocurrencies like BNB, ADA, SOL, MATIC, and ATOM experienced selling pressure after being named “investment contracts” by the SEC.
| Binance vs. SEC lawsuit | Coinbase vs. SEC lawsuit |
|---|---|
| Solana (SOL) | Solana (SOL) |
| Cardano (ADA) | Cardano (ADA) |
| Polygon (MATIC) | Polygon (MATIC) |
| Filecoin (FIL) | Filecoin (FIL) |
| Cosmos (ATOM) | – |
| Sandbox (SAND) | Sandbox (SAND) |
| Decentraland (MANA) | – |
| Algorand (ALGO) | – |
| Axie Infinity (AXS) | Axie Infinity (AXS) |
| Coti (COTI) | – |
| – | Chilliz (CHZ) |
| – | Flow (FLOW) |
| – | Internet Computer (ICP) |
| – | Near (NEAR) |
| – | Voyager (VGX) |
| – | Dash (DASH) |
| – | Nexo (NEXO) |
What Next for the Crypto Industry?
Compliant CEX as a Crypto On-Ramp
Experts at Pantera Capital envision a future where U.S. crypto companies move offshore due to aggressive regulations. They suggest that U.S. centralized exchanges may only list Bitcoin and Ether, while international exchanges list other tokens.
CFTC Over SEC
The crypto industry prefers regulation by the CFTC rather than the SEC. Crypto insiders are lobbying for cryptocurrencies to be classified as commodities, allowing for less stringent disclosure requirements.
Understanding the SEC’s Concerns
The SEC aims to regulate cryptocurrencies similarly to the stock market, but there are no specific regulations for cryptocurrencies yet. The SEC’s actions against Binance, Coinbase, and Kraken indicate its intent to treat cryptocurrencies as securities.
The Bottom Line: Crypto Regulations Are Inevitable
Cryptocurrency regulation is inevitable, but there is hope for a fair deal in the U.S. With better clarity on regulations, crypto exchanges are expected to emerge stronger, safer, and more acceptable.
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. and has its own cryptocurrency, BNB.
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, co-founded in 2011 by Jesse Powell and Thanh Luu, is one of the oldest crypto exchanges. It offers over 200 cryptocurrencies and supports transactions in eight fiat currencies.
