It isn’t surprising that cryptocurrency is facing the scrunity of U.S. federal regulators. It’s a pattern we’ve seen before with other disruptive and transformative technologies — from electricity to the internet.
But the U.S. Securities and Exchange Commission’s (SEC) charges this week against cryptocurrency exchange Binance Holdings and separate charges against digital-asset exchange Coinbase Global
threaten to undermine the United States’ ability to be a front-runner — or even a contender — in the revolutionary realm of cryptocurrency and the financial liberty it bestows on its users.
The SEC on Monday filed 13 charges against Binance, one of the world’s largest cryptocurrency exchanges, and its CEO Changpeng Zhao, also known as CZ. The lawsuit includes allegations that Binance artificially inflated trading volumes, misled investors, and failed to restrict U.S. customers from its platform.
On Tuesday, the SEC took aim at Coinbase Global, the popular cryptocurrency exchange. Regulators charged the cryptocurrency exchange with illegally offering exchange, brokerage, clearing and staking services.
These latest actions are a further testament to the SEC’s unwavering drive to annihilate the burgeoning world of cryptocurrency in the U.S. As the dust begins to settle, key questions emerge: Can Binance halt the bank run that often follows such accusations? How will the market react to this direct attack on crypto? Finally, given the extreme regulatory uncertainty, what does the future hold for cryptocurrency?
Considering the potential bank run, Marija Matić from Weiss Ratings revealed that despite the serious allegations, less than 2% of the BTC from Binance exchange reserves had been withdrawn in five hours following the news. According to data from Coinglass, this is a lukewarm reaction compared to the response FTX received in a similar situation. It indicates that the crypto community may have confidence in Binance’s ability to handle this crisis, at least in the short term.
Adding another layer of complexity, the SEC claimed that Binance’s native token BNB and its stablecoin BUSD are unregistered securities. This puts into question the future of 12 other cryptocurrencies, with a combined value of $86 billion. It also alleged that several other assets on the Binance platforms are unregistered securities, including Solana
was not on the SEC’s list, which might come as a relief to ETH enthusiasts. However, Matić cautions not to celebrate too soon, as the reasons for listing tokens as securities could potentially apply to the majority of tokens in the Ethereum ecosystem.
The criteria used by the SEC seem diverse, and in some instances might appear overreaching. Routine activities of many cryptocurrencies — fundraising through token sales for ecosystem development, providing updates on network growth and developments on a blog, announcing public listings, and making certain promotional claims — have all been flagged as issues.
Matić suggests that such broad criteria could apply to almost any cryptocurrency and raises questions about the specific selection of coins targeted in the lawsuit.
Despite current uncertainties, the crypto industry’s resilience, as demonstrated by its history, could provide support. Past instances where Binance temporarily halted trading or announced its exit from Canada, for example, led to initial panic and subsequent dips in bitcoin
prices. Yet swift recoveries followed drops, demonstrating the market’s ability to rebound.
“ Traditional finance has weathered similar legal challenges and the crypto industry can do the same. ”
As Graeme Moore of Polymesh pointed out, lawsuits from U.S. financial regulators, like the one Binance currently faces, are not uncommon. Traditional finance has weathered similar legal challenges and the crypto industry can do the same. In his words, these challenges, while significant, simply represent necessary hurdles on the path to the industry’s evolution.
While the recent developments suggest a potential turning point in the story of crypto in the U.S., Gabriella Kusz, CEO of the Global Digital Asset & Cryptocurrency Association, notes that the crypto industry extends well beyond U.S. borders. Despite regulatory obstacles in one country, the industry continues to thrive globally.
Kusz also drew attention to another interesting pattern in the market’s response to regulatory actions. These events seem to push capital from less-defined digital assets (altcoins) into bitcoin, strengthening its position within the crypto landscape. The recent allegations against Binance could further catalyze this trend in the future.
What does the future hold for cryptocurrency? In a climate of uncertainty and regulation, crypto stands at a pivotal juncture. Yet the response to Binance’s predicament so far suggests that faith in the crypto market and its leaders remains robust. Indeed, these challenges may serve to catalyze its evolution, driving it to become more transparent, and ultimately more resilient.