All (Not) Quiet in Crypto: Coinbase and Binance Against SEC’s Escalation
Crypto altered the world. Now the world is altering crypto. However, there is a nuance.
What is your association with the title “SEC”? Financial regulations? White collars, fatigued under the red tape’s hard hand? Or maybe, it is the fierce confrontation with the crypto realm? All three points are sound, yet only the last one is radically jeopardising the realm of blockchain currency.
The U.S. Securities and Exchange Commission sued two largest crypto exchanges in the world — Coinbase and Binance — for a barrage of convictions and allegedly illegal actions. The foremost factor driving SEC to take up a legal battle between two pillars of crypto sphere is the issue of regulation of the assets. However, it is crucial to hit the basis of the situation deeper.
Context
Binance vs SEC — What Happened?
On June 5, the SEC has filed a lawsuit against the largest crypto exchange over the globe — Binance — as far as against its U.S. platform and CEO — Changpeng Zhao, mostly known as CZ, amidst the presumable investigations, carried out by the U.S. Securitites and Exchange commission since 2022. The according convictions reportedly are reportedly focused on the fact that the tokens listed on Binance were securities. The full range of the assets includes BNB, BUSD, Solana, Polygon, Cardano, Cosmos, Filecoin, Decentraland, Axie Infinity, Algorand, The Sandbox, and Coti.
Notably, the suit included 13 charges pressed, which not only alleged the illegitimate sales of the “securities” mentioned above, but also involved the absence of registration the Binance.com and Binance.US platforms as broker-dealer clearing agencies. CZ was sued as a “controlling person” of the so-called violations.
This is not the first time Binance is an object of accusations. Namely, the exchange did not delist Russian ruble and reportedly allowing users to purchase crypto with Russian bank cards after curbing its service in the country following international sanctions, while the other crypto exchanges banned the Russian users immediately at the beginning of the war. Moreover, Volodymyr Nosov, the WhiteBIT CEO claimed in the latest interview: “We have rendered any operations pertaining to russia technically unfeasible, meticulously adhering to all AML compliance norms to detect and scrutinize the flow of funds in crypto and fiat transactions. As a transparent enterprise, we consistently collaborate with law enforcement and judicial entities.”
Remarkably, the filing claimed that the Binance’s crucial entities “have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk”. The document additionally stated:
“Defendants BAM Trading and BAM Management (Binance’s holding and operational companies accordingly — author’s note) defrauded equity, retail, and institutional investors about purported surveillance and controls over manipulative trading on the Binance.US Platform, which were in fact virtually non-existent.”
The press statement by the SEC also shed the light on another core basis of the filing — accordingly, CZ and Binance were involved in groundbreaking market manipulations. Gary Gensler, the Head of the SEC, namely claimed:
“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law. (…) As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”
Not surprisingly, Binance’s official answer to the allegations comprehensively denied the filing basis.
“The SEC has taken to using extremely aggressive and intimidating tactics in its pursuit of an ideological campaign against the American digital asset industry”
CZ also expressed a resistent disapproval of the accusations to him.
Vital to mention: according to CZ’s tweet, the litigation heeds only the Binance.US, and reportedly, the assets of Binance are safe.
Opening The Second Front
It took only a day for US Securities and Exchanges commission to sue another American-based major crypto exchange — Coinbase, which is considered to be one of the most secure crypto exchanges. The legal basis of the suing turned out to be the alleged offering of unregistered securities with the infringement of regulatory policies. Simply put, the allegations are pretty identical to the ones aiming at Binance, making the point of the sole complex strategy at the roots of this cases rather plausible.
The SEC Is Not Up to Cooperate
Significantly, the impending of distinct crypto legislation basis was burning issue at least for the last year, and whether Bitcoin rather voiced its consent to the government, Coinbase strongly called for the regulations to implement, however the SEC did not only cause the remaining obscurity to surround the concern, but presumably ignored the request for the year and ultimately declined it.
To be more specific, in July, 2022, Coinbase’s officials filed a petition to the SEC, intensively asking for regulation of digital assets’ trading operations to be carried out and requested the clear legal definition of the crypto. The neglection of the petition resulted in the litigation, initiated by the exchange, as Paul Grewal, Chief Legal Officer at Coinbase, stated that the suing in the U.S. Circuit Court was listed in April, 2023, in order to “compel the SEC to respond “yes or no” to a rulemaking petition (…), asking them to provide regulatory guidance for the crypto industry”. He also argued that the very vagueness in crypto realm regulation is greatly contributed to by Gary Gensler himself.
What Does SEC’s Suings Indicate?
The U.S. crypto market was radically transformed into a harsh environment, and the SEC is one of the entities driving these unpleasant changes. The consequential impact of the body’s eliminating actions towards crypto already caused Hotbit and Bittrex.US, the two formerly large exchanges, to cease to exist, and clear SEC’s aspiration to get off Coinbase and Binance off the grid raises concerns about other exchanges that operate in the United States, such as Kraken, Crypto.com, Gemini and Okcoin. That endangers the realm of crypto and its prominence in the USA groundbreakingly.
Still, it is no secret that the SEC’s legal processes, which are targeting the crypto entities, is presumably a part of a comprehensive strategy — the one which states the rejection of the whole industry as a foremost goal. Remarkably, the regulation is sought by both U.S. government and crypto representatives, but the intentional or unintentional miscommunication has led to the point at which we now stand. Indeed, the legal entities and legislative acts within various instances could not cope with the definition of crypto assets and their regulation, and given that, it looks rather reckless to fight a piece of technology, but not tackling its legal status.
Nevertheless, there could have been a slight chance that the SEC is unable to see the bigger picture here, and trying to hopelessly control the industry against the background of fraudulent FTX exchange, however the investigations initiated towards crypto entities were being elaborated much earlier. But, the never-ending paradox of the disbalanced collision between Freedom and Security is clearly noticeable as a simplified and a bit naive explanation of SEC’s actions. Although the dilemma may be true, the aftermath of Gensler’s operations are extremely disastrous by not only interfering with the core principles of the crypto realm, but also shaping the industry’s pessimistic scenario of development.
Closing Remarks: Is Crypto at its Downfall?
Although the SEC’s legal processes have a devastating effect on the crypto industry in the US and over the globe, the realm is not to be eliminated so easily. Besides, the range of promising and cutting-edge crypto markets is still an option for the exchanges to carry out the operations.
However, the idea of cryptocurrencies is being threatened by Gensler’s watchdog as it completely neglects the freedom, the security, and the privacy as the ground principles of decentralised assets. Given that, the crypto awareness and reputation is at high risk of suffering the irreversible damage and negatively altering the perception of crypto in people’s minds, similarly to the tarnishing of the industry by marketing fraudsters.
Nevertheless, the overwhelming support not only from the crypto community, but from the personalities, not actively involved in crypto, is a silver lining.
There is a hope that crucial ideas of blockchain currencies as well as credible regulation will reign in the crypto realm.
