Crypto Under Fire: SEC Tightens the Screws on Coinbase and Binance
June 7, 2023
The Securities Exchange Commission (SEC) is intensifying its campaign against cryptocurrency, lodging a lawsuit against Coinbase (NASDAQ:COIN) just a day after taking similar action against Binance. The charges leveled at each differ – with Coinbase’s case focusing on the registration of securities and market operations, while Binance’s involves allegations of fraud and attempts to evade regulations – yet the two lawsuits share certain similarities. These unfolding legal dramas are poised to shed light on the complex issues surrounding crypto regulations and to clarify the extent of regulatory authority over cryptocurrency platforms.
Deeper Insights: Crypto’s ‘Wild West’ Era Nearing an End?
In the grand scheme of things, the current scenario echoes the early stages of the cryptocurrency experiment – or revolution, depending on one’s perspective. Digital asset companies followed a trailblazing strategy similar to disruptive traditional firms. This approach closely resembled the rise of the gig economy, which upended established tax and labor laws until regulators finally caught up. Early believers in crypto assumed that regulation would eventually yield innovation. However, recent events have refuted this belief, suggesting that the unchecked growth of crypto may not elude regulatory scrutiny indefinitely.
An Evolving Paradigm: The Call for Compliance in Crypto
“The investing public benefits from U.S. securities laws; cryptocurrency should be treated no differently. These platforms and intermediaries need to align with compliance,” asserts SEC Chair Gary Gensler. “In truth, people should exercise greater caution. The call for additional digital currencies is unnecessary. We already possess digital currency – the U.S. dollar, the euro, the yen. All these currencies exist in digital form already.”
A Rocky Relationship: Coinbase and the SEC’s Growing Strife
Back in March, Coinbase received a Wells notice – a harbinger of potential enforcement action – from the SEC. However, the company claimed that the regulatory body disregarded its registration-related proposals. The following month, Coinbase boldly took legal action against the SEC, seeking to elicit a response to its rulemaking petition. At the same time, the CFTC accused Binance of violating specific trading and derivatives rules. These recent lawsuits firmly establish the regulatory jurisdiction over the crypto industry through federal securities laws and investor protections, instead of supporting the expansion or revision of the existing regulatory framework that many crypto enthusiasts advocate.
The Fallout: Market Reaction and the Future for Coinbase
Investors responded dramatically, causing Coinbase shares to plunge by 12% on Tuesday following ominous signs in the preceding months. Danil Sereda, SA Investing Group Leader, had anticipated the sustained downturn in his article “The Downtrend Could Be Stronger Than You Think,” and advised caution against resisting the SEC in “Coinbase Stock: Don’t Fight The SEC” earlier in May. However, legal issues are just the tip of the iceberg for Coinbase’s troubles. The company recently disclosed its fifth consecutive quarterly loss, coupled with nearly $1.3 billion in net customer outflows in the aftermath of the lawsuit. Since its direct listing on the Nasdaq in April 2021, the company’s stock has dropped a staggering 80%, casting a shadow over its future prospects.