Analysis: US SEC Crackdown on Coinbase, Binance Notifies Crypto Exchanges
WASHINGTON, June 8 (Reuters) – Other US crypto exchanges are likely to find themselves in the firing line after the Securities and Exchange Commission (SEC) this week charged Coinbase and Binance, two of the world’s largest crypto exchanges, with alleged violations of the rules.
The SEC alleged on Tuesday that Coinbase traded at least 13 crypto assets that are securities that should have been registered, while on Monday it also accused Binance, the world’s largest cryptocurrency exchange, of offering 12 cryptocurrency coins without describing them as register securities.
The lawsuits expand the total number of cryptocurrencies the SEC has explicitly identified as securities. That raises questions about other exchanges that have also allowed US investors to trade those tokens, such as Kraken, Gemini, Crypto.com and Okcoin, and whether they are at risk of regulatory action, industry executives said. Some exchanges may try to remove the affected tokens from the list.
“All U.S. exchanges must now be notified that they may be subject to enforcement action if they allow or have allowed these tokens to be traded,” said Jason Allegrante, chief legal and compliance officer at Fireblocks, a provider of digital asset infrastructure.
A spokesperson for crypto exchange Bitstamp said the company “takes all new regulatory developments very seriously” and is “currently reviewing the new information that came out this week to determine what actions to take .”
Both Coinbase and Binance deny the SEC’s allegations and have pledged to vigorously defend themselves in court. The SEC declined to comment.
While crypto companies started out in a regulatory gray area, the SEC led by Gary Gensler has steadily asserted the agency’s jurisdiction over the industry, arguing that most tokens meet the definition of a security and should be subject to the same strict disclosure rules.
The agency has filed more than 130 crypto lawsuits and settlements to date, according to data from consultancy Cornerstone Research and the SEC website, and has named specific tokens as securities in several of those cases.
This week’s Coinbase and Binance packs expand that list to include some highly traded tokens, such as Solana, Cardano, and Polygon.
“We wouldn’t be surprised to see more lawsuits from US regulators and possibly the Justice Department in the coming weeks,” said Scott Freeman, co-founder of JST Digital, a financial services company focused on digital assets.
A Justice Department spokesperson declined to comment.
Crypto companies including Coinbase and Binance challenge the SEC’s authority, saying many tokens are more akin to commodities, and have repeatedly called on regulators to create clear rules rather than assert their jurisdiction through enforcement action.
“We do not list securities. For each asset we list, our teams conduct thorough risk and safety assessments, including an extensive legal and compliance process. We will continue to closely monitor this case and others for precedent rulings,” said one spokesperson for Kraken. .
Gemini, Crypto.com and Okcoin did not immediately respond to a request for comment.
‘DESTRUCT THE CRYPTOECONOMY’
The latest lawsuits will be fought in court, which could take years. For example, an SEC lawsuit alleging that Ripple’s XRP token is a security has been pending for more than two years.
But whether the SEC wins or loses, the lawsuits send a strong signal to the industry that the agency will not give up, executives said. While major crypto companies can afford to fight the SEC, smaller companies have filed for bankruptcy following SEC enforcement action, including crypto exchange Beaxy.
“I don’t think this SEC under this leadership necessarily cares if they win or lose in the courts. I think they’re on a concerted campaign to essentially destroy the crypto economy in the United States,” Stuart Alderoty, chief legal officer at Ripple, told the Piper Sandler Global Exchange & Fintech Conference in New York on Wednesday.
Gensler has suggested that an industry shakeout would be good for investors.
“I disagree with the idea…that compliance with crypto intermediaries is not possible,” Gensler said in a speech on Thursday, adding that “it takes work.”
According to Bernstein analysts, about 90% of crypto trading already takes place outside the U.S. Executives said they expected the exchanges to continue expanding into international regions with more favorable regulations.
For example, Coinbase has previously said it would consider moving its global headquarters outside of the US
“I imagine other companies spooked by the prevailing trend of regulation through enforcement will follow suit,” said Katharine Wooller, business unit director at Coincover, an insurance provider for digital assets.
Reporting by Hannah Lang in Washington; Additional reporting by John McCrank in New York and Susan Heavey in Washington; Additional reporting and writing by Michelle Price; Edited by Stephen Coates and Paul Simao
Our Standards: The Thomson Reuters Principles of Trust.
