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The cryptocurrency industry is facing a pivotal moment following lawsuits lodged by the Securities and Exchange Commission (SEC) against Coinbase and Binance, two of the leading cryptocurrency exchanges. The SEC alleges that these firms have violated securities regulations and operated unlawfully, which could potentially reshape their business operations in the United States.
This week marked a significant departure from the decade-long period of unrestricted growth and ambitious visions of the financial revolution the cryptocurrency industry has been known for. The SEC announced lawsuits against Binance and its CEO Changpeng Zhao, shortly followed by a suit against Coinbase, the largest cryptocurrency exchange in the United States and a publicly traded company.
The allegations
The allegations in the lawsuits state that both exchanges have offered unregistered securities to their users and failed to comply with broker registration requirements. The charges against Binance are more extensive, accusing the company of misusing customer funds and using affiliates to manipulate trading volumes artificially.
While the charges against Binance are seen as more severe, both lawsuits could significantly disrupt how the businesses operate in the U.S. Binance, registered in the Cayman Islands, could potentially cease U.S. operations. However, such a move would not be feasible for Coinbase, as the U.S. market contributed significantly to its total revenue in the first quarter of this year.
Coinbase CEO Brian Armstrong has publicly affirmed his commitment to defending the industry in court and seeking clarity on cryptocurrency regulations. Meanwhile, insiders expect Coinbase to mount a strong defense against the lawsuit, which effectively declares its entire U.S. operation as illegal.
SEC Chair Gary Gensler has made comparisons between the Binance case and the allegations of fraud against FTX, another cryptocurrency exchange. He warned investors about holding assets on Binance due to the potential risk involved and suggested that investment advisors using Binance to hold client assets might be violating regulations.
Industry experts see the SEC lawsuits as a major crackdown on the cryptocurrency industry, posing a particular threat to Binance's operations in the U.S.
Contrasting with the drawn-out legal battle against Ripple, another cryptocurrency company, some anticipate a quicker resolution for the Coinbase and Binance cases, particularly if there is a perceived risk to customer assets.
While the lawsuits are undoubtedly significant, there is hope that they might not spell catastrophe for Coinbase. If the company shows signs of moving toward regulatory compliance, the SEC might opt for penalties rather than a shutdown.
However, some believe that the lawsuits are not the biggest existential threat to the industry. Rather, the fundamental nature of the cryptocurrency market is seen as the real issue. Critics express disappointment over the lack of intrinsic value in these assets beyond speculative trading or operating an exchange.
Impact on the Crypto Market
Moreover, there is a belief that the SEC's case could result in a large segment of the altcoin market disappearing, or at least leaving the U.S. if most cryptocurrency tokens are classified as securities. Some do not see this potential outcome as negative, critiquing the lack of value creation in the token market and the dominance of trading and Wall Street practices. In this view, a compromise between the SEC and Coinbase would merely mean keeping the speculative trading market open.
