This week, the Securities and Exchange Commission (SEC) filed a lawsuit against Coinbase and Binance for securities violations, causing a selloff in the crypto industry. According to CoinMarketCap, four out of the top 10 coins experienced a plunge in value of at least 15%, leading to crypto investors taking the hint. The selloff was sparked by the lawsuits and Gary Gensler’s interview with CNBC, in which he cast doubt on the future of token trading, stating that “we don’t need more digital currency.”
The SEC alleged that Coinbase was acting as an unregistered broker and exchange, and at least 13 crypto assets available to the company’s customers were considered “crypto asset securities.” The tokens mentioned included Solana’s SOL token, Cardano’s ADA token, Polygon’s MATIC coin, and Protocol Labs’ Filecoin token (FIL).
Robinhood, the trading app, followed suit by announcing that it would no longer support trading of coins from Cardano, Polygon, and Solana, starting June 27. Crypto.com also declared that it would shut down its U.S. institutional exchange. The seventh-most valuable cryptocurrency, Cardano’s coin, tumbled 20% in the past week. Solana, ranked ninth, dropped 18%, Polygon ranked 10th, also slid 18%, and Filecoin, further down the list, dropped 19%. Binance’s BNB token, ranked fourth, fell 16%. In contrast, the two most popular cryptocurrencies, bitcoin and ethereum, were more stable, each declining less than 5%.
Gensler’s Targeting of Crypto Firms and Exchanges
Gary Gensler, who was appointed to head the SEC by President Biden in 2021, has spent much of the past year going after crypto firms and exchanges for effectively selling highly-speculative and risky securities disguised as something else. From high-profile fraud cases involving Sam Bankman-Fried’s FTX and Do Kwon’s Terraform Labs to dozens of charges involving coin offerings and alleged false marketing, Gensler has made the once-burgeoning crypto industry his primary takedown target.
“The investing public has the benefit of U.S. securities laws,” Gensler said in an interview with CNBC’s “Squawk on the Street.” “Crypto should be no different, and these platforms, these intermediaries need to come into compliance.”
The SEC sued Coinbase and said the company should be “permanently restrained and enjoined” from “operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.” Shares of Coinbase, the only major crypto exchange publicly traded in the U.S., sank 18% this week.
In its lawsuit against Binance, the SEC alleged that the company and founder Changpeng Zhao comingled billions of dollars worth of user funds and sent them to a European company controlled by Zhao. While Binance claims no official headquarters and does most of its business overseas, the SEC’s complaint cited a senior executive allegedly telling a compliance officer that the company was operating as a “[f—ing] unlicensed securities exchange in the USA bro.”
Others named in the SEC lawsuit also weighed in after this week’s charges landed. The Cardano Foundation, which works to advance the use of its namesake technology, said in a tweet that it disagrees with the labeling of its ADA coin as a security and “we look forward to the continued engagement with regulators and policymakers to achieve legal clarity and certainty on these matters.” Protocol Labs, the developer of Filecoin, said in a series of tweets on Thursday that the token is critical to the operation of its distributed storage network, and it’s how people buy storage from providers. Protocol says the cost is much less than what users would pay Amazon Web Services or Google Cloud.
In its 101-page complaint against Coinbase, the SEC made clear that regardless of whether these tokens have some level of utility, they can easily be purchased on the app by people who have no interest beyond investing. And Coinbase generates revenue by executing those trades. “Coinbase makes these crypto assets available for trading,” the SEC said, “without restricting transactions to those who might acquire or treat the asset as anything other than as an investment.”
Coinbase’s legal chief, Paul Grewal, told CNBC in a statement that the SEC’s approach to enforcement without laying out clear rules is “hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance.” Binance, in a blog post, said it was “disappointed” in the SEC’s suit and said it had “engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations.”
The SEC’s lawsuits against Coinbase and Binance have led to a selloff in the crypto industry, with four out of the top 10 coins experiencing a plunge in value. Gensler’s targeting of crypto firms and exchanges has made the once-burgeoning crypto industry his primary takedown target, with the SEC alleging that Coinbase and Binance were acting as unregistered brokers and exchanges. Despite opposition from those named in the SEC lawsuit, the SEC has made it clear that crypto firms and exchanges need to come into compliance with U.S. securities laws.
Leave a Reply