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The U.S. Securities and Exchange Commission has sued the world’s largest cryptocurrency exchange. This could mean the end of the platform. But what does this step mean overall for virtual currency trading?
This week, the crypto industry once again had to digest negative headlines. The U.S. Securities and Exchange Commission (SEC) also took rival Coinbase to court this week, a day after it filed a lawsuit against the world’s largest cryptocurrency exchange, Binance. SEC Chairman Gary Gensler tweeted that the company operated an unlicensed trading platform.
So far, in his view, a “wild west approach” prevails in the largely unregulated crypto market. Authorities now want to change that with two lawsuits — but what exactly do they mean for the scene and its cast?
The existence of Coinbase and Binance is threatened
“The SEC lawsuit poses a major threat to the survival of existing trading platform participants, as they are accused of knowingly violating existing laws,” explained Jan Pieter Krahnen, director of the Leibniz Institute for Financial Market Research (SAFE). Frankfurt.opposite tagesschau.de. The penalties for such cases are extremely severe.
The SEC accused Binance and Coinbase of illegally conducting financial transactions and services without a license. Because the stock exchange regulator classifies the investment as a security, the company should have registered accordingly, the complaint said. According to Gensler, investors are deprived of important protections against fraud and manipulation. The SEC also accused Binance, the world’s largest cryptocurrency platform, and its owner, Changpeng Zhaoon, of engaging in an “extensive web of deceit, conflicts of interest, lack of disclosure, and willful evasion of the law.”
Gary Gensler is the head of the US Securities and Exchange Commission.
Additionally, Binance is also said to have misled investors, manipulated the stock exchange’s turnover and diverted funds using fake trades. Allegations against Coinbase have gone in a similar direction. In addition to not having a license, the SEC has also targeted the company for so-called pledges, which also require a state license. Users give their network currency to miners so they can get transaction validation. In return, they receive a portion of the fee. According to Krahnen, it is difficult to assess the veracity of these lawsuits.
Coinbase customers withdraw millions of dollars
Meanwhile, the two cryptocurrency exchanges are trying to appease their investors. Coinbase attorney Paul Grewal said the cryptocurrency exchange continues to operate and has demonstrated compliance with the rules. Coinbase CEO Brian Armstrong also emphasized that the US Securities and Exchange Commission reviewed the business model related to the 2021 IPO and had no objections at the time. Binance also called the allegations baseless, emphasizing: “We will vigorously defend ourselves.” Both companies declared that customer funds were safe.
However, Krahnen said, this plays a secondary role. “Even when customers just feel that the platform’s existence is threatened, they turn around and withdraw their funds. Then they find themselves in a real existential dilemma in turn,” Kranin said. The whole thing is as contagious as a bank run – similar to the FTX bankruptcy. Questions over funding reserves have led to the loss of clients and billions in former heavyweight cases.
In fact, in the hours after the lawsuit was announced, Coinbase customers withdrew more than $57 million from their accounts. At the same time, the trading platform’s share price has gone downhill, at times dropping nearly 21%. Binance Coin, the world’s fourth-largest cryptocurrency with a market capitalization of about $43.7 billion, also fell 10 percent earlier this week, according to industry service CoinMarketCap.com.
At the “glowing table” not in the “dark chamber”
At the same time, in addition to filing a lawsuit in the US federal court, the US Securities and Exchange Commission also requested a temporary injunction to freeze Binance’s assets in the United States. The company said on its company blog that it has actively cooperated with the investigation. The fact that the SEC is still suing is frustrating. “The SEC’s actions undermine the United States’ role as a global center of financial innovation and leadership,” Binance said.
Founded in 2017, the exchange processed $23 trillion worth of transactions last year, according to industry service CryptoCompare. Coinbase, meanwhile, has a customer base of 108 million, and as of the end of March, they had invested a total of $130 billion in the online currency. Roughly 60% of Bitcoin & Co.’s global trading volume is processed through the two cryptocurrency exchanges. So is the SEC’s action another major blow to the industry?
Expert Krahnen said: “The US Securities and Exchange Commission believes that cryptocurrencies should be treated like other securities, which will lead to the long-term integration of this field into traditional capital markets.” This will reshape the market in the future. While this is a major blow to platform owners, it could also be an opportunity for the entire crypto world. “The industry can hope that soon it will be sitting at a table with lights, not in a dark back room,” Krahnen said. So far, all regulators have rejected this.
Provide more protection for investors?
Private investors can also benefit from being included in traditional financial markets. “If digital products go through the normal monitoring process, it won’t be so easy for investors to backstab dangerous actions,” Cranin said. Permanent observation of a business means more security for investors.
But at this point, according to the financial researcher, the intentions of SEC boss Gensler may also be revealed: “In the long run, the consolidation and legalization of the crypto market may lead to the end of these trading platforms — not because of lawsuits. , but because they are in the spotlight of a scrutinized and transparent public, they have no real chance of survival.”