The U.S. Securities and Exchange Commission (SEC) has launched a significant crackdown on the cryptocurrency industry, filing lawsuits against two of the largest crypto exchanges, Coinbase and Binance. This move marks a dramatic escalation in regulatory efforts to bring the largely unregulated market under federal securities laws.
SEC’s Lawsuits Against Coinbase and Binance
On June 6, the SEC sued Coinbase, accusing the platform of operating as an unregistered securities exchange. This lawsuit follows a similar action taken against Binance, the world’s largest cryptocurrency exchange, just a day earlier. The SEC alleges that Binance and its CEO, Changpeng Zhao, have been operating a "web of deception."
The SEC’s complaint against Coinbase, filed in Manhattan federal court, claims that since at least 2019, the company has made billions of dollars by acting as a middleman in crypto transactions while evading disclosure requirements designed to protect investors. The SEC identified at least 13 crypto assets traded on Coinbase that it considers securities, including Solana, Cardano, and Polygon.
Impact on the Crypto Market
The lawsuits have already had a significant impact on the market. Coinbase experienced approximately $1.28 billion in net customer outflows following the announcement, and its parent company’s shares dropped by 12.1%. Despite this, Coinbase’s general counsel, Paul Grewal, stated that the company would continue to operate as usual and has shown a commitment to compliance.
Binance also faced immediate repercussions, with customers withdrawing around $790 million from the platform and its U.S. affiliate. The SEC has filed a motion to freeze assets belonging to Binance.US, Binance’s U.S. affiliate.
Broader Implications
The SEC’s actions could have far-reaching implications for the cryptocurrency industry. If the SEC prevails in either case, it could transform the market by asserting its jurisdiction over crypto assets, which have long been argued to fall outside the scope of securities regulation.
Kevin O’Brien, a partner at Ford O’Brien Landy and a former federal prosecutor, noted that the SEC’s aggressive campaign aims to bring cryptocurrencies under federal securities laws. "If the SEC prevails in either case, the cryptocurrency industry will be transformed," he said.
SEC’s Regulatory Stance
SEC Chair Gary Gensler has consistently maintained that tokens constitute securities and has steadily asserted the SEC’s authority over the crypto market. Initially focusing on the sale of tokens and interest-bearing crypto products, the SEC has recently targeted unregistered crypto broker-dealer, exchange trading, and clearing activities.
The SEC has also cited the recent ruling against Terraform Labs, which deemed its tokens UST and LUNA as securities, to strengthen its case against Coinbase and Binance. The regulator argues that both exchanges have violated U.S. securities laws by offering and selling unregistered securities.
Industry Response
The cryptocurrency industry has pushed back against the SEC’s actions, arguing that the regulator’s rules are ambiguous and that it is overstepping its authority. Many companies have increased their compliance efforts, shelved products, and expanded operations outside the U.S. in response to the crackdown.
Kristin Smith, CEO of the Blockchain Association trade group, expressed confidence that the courts would rule against the SEC. "We’re confident the courts will prove Chair Gensler wrong in due time," she said.
Future Outlook
While the SEC’s actions aim to ensure compliance with securities laws and protect investors, they could also lead to a more stable and trustworthy industry. Joshua Chu, group chief risk officer at blockchain technology firms XBE, Coinllectibles, and Marvion, believes that these events will ultimately attract more institutional investors and mainstream adoption.
Founded in 2012, Coinbase recently served over 108 million customers and ended March with $130 billion in customer crypto assets and funds on its balance sheet. Transactions generated 75% of its $3.15 billion in net revenue last year. The SEC’s lawsuit seeks civil fines, the recouping of ill-gotten gains, and injunctive relief.
Binance, on the other hand, has pledged to vigorously defend itself against the lawsuit, describing the SEC’s actions as a "misguided and conscious refusal" to provide clarity to the crypto industry.
