The SEC sues the 2 biggest crypto exchanges in a one-two punch for the industry
Like Conor McGregor vs. the Paul Bros… This week the Securities and Exchange Commission sued the No. 1 and No. 2 largest crypto exchanges, Binance and Coinbase. The separate lawsuits could be a regulatory KO for crypto companies in a smackdown with regulators that’s been escalating since FTX collapsed in November, taking customer funds down with it.
The charges: The SEC said that Binance and Coinbase are operating as unregistered exchanges in the US, buying and selling crypto assets that the SEC now classifies as securities (including popular tokens like Solana and Cardano). It also said Binance mishandled customer funds, among other charges.
The consequences: Significant fines and penalties are on the table. Bigger picture: If it’s decided the exchanges broke US laws, more crypto companies could move operations to crypto-friendlier countries (which some have already started doing).
Two POVs… For the umpteenth time, SEC Chair Gary Gensler called crypto a “Wild West” industry that intentionally skirts the rules. SEC Enforcement Chief Gurbir Grewal said, “You simply can't ignore the rules because you don’t like them or because you’d prefer different ones.” But many crypto companies have yelled “nuh-uh!” on repeat, calling out regulators for relying on “regulation by enforcement,” instead of providing clear guidance up front.
If crypto companies were in the Shire before… now they’re spotlighted by the Eye of Sauron. Whether they wanted rules or not, crypto companies have avoided many of the rules and regulations traditional US financial companies must comply with. The crackdown could slow an industry known to move fast (think: fewer new tokens), and Coinbase said the SEC’s ability to deny new listings could hurt its transaction revenue. Yet consumers may be better protected.