Is it a war on crypto?

Everything you need to know about the SEC lawsuits

Author

Angelina Berger
June 13, 2023

Welcome back. Today, we’re diving into the SEC’s action against crypto exchanges and what it means for our industry. One (bizarre) thing to keep in mind? Gary Gensler allegedly applied to serve as an advisor for Binance back in 2019 before he became Chair of the SEC…

Which proves my theory of crypto being the telenovela of finance—full of dramatic twists, unpredictable plots, and everyone yelling about the things they love most.

On the agenda: Unpacking the Binance and Coinbase lawsuits, how they impact major altcoins, and a potential metaverse milestone. Let’s go.

—Angelina

Everything You Need to Know About the SEC Lawsuits

Last week in crypto was…wild. The U.S. Securities and Exchange Commission filed back-to-back lawsuits against the world’s two biggest crypto exchanges, Binance and Coinbase. Let’s break things down, step by step.

Binance got hit first. On June 5, the SEC filed 13 charges against Binance, its CEO Changpeng Zhao (aka CZ), and partner company Binance.US. This comes just over two months after the Commodity Futures Trading Commission (CFTC) sued Binance for compliance and know-your-customer violations. But the SEC’s allegations significantly expand on that of its sister agency…

According to the SEC, Binance…

  • Lacked internal controls, leading to the commingling of customer funds, some of which even went to personal expenditures of company execs

  • Tricked regulators into thinking that Binance.US was independent from Binance.com, when it was in reality controlled by CZ

  • Actively helped U.S. customers (which Binance is barred from serving) circumvent controls

  • Engaged in internal wash trading to artificially inflate trading volumes on Binance.US

  • Offered unregistered securities to the public (keep reading for more on that)

Given the hefty allegations, experts are seriously starting to wonder whether the Binance brand can survive its mounting legal troubles.

Coinbase was next. Just a day after the Binance suit, the SEC dropped its weight on the world’s second-largest exchange. The agency is accusing Coinbase of…

  • Operating as an unregistered securities exchange, broker, and clearing agency

  • Failing to register the offer and sale of its staking program

The SEC says Coinbase has been breaking the rules since 2019, but worth noting: The SEC approved Coinbase’s IPO in 2021.

Important differences: The accusations against Binance are more severe than those against Coinbase. Unlike Binance, Coinbase isn’t being accused of mishandling customer funds, wash trading, and general ill intent. The SEC also isn’t attacking any Coinbase execs personally like it is CZ.

Zoom out: Neither suit comes as a total surprise—U.S. regulators have been cracking down on the crypto industry repeatedly since last year’s FTX disaster.

So where do we go from here? Two scenarios:

  1. Worst case: The SEC wins in court and major fines are levied against both exchanges. Binance.US is shut down, CZ steps down as Binance’s CEO, and it becomes close to impossible for Coinbase to continue business in the U.S.

  2. Best case: Binance and Coinbase win against the SEC and return to business as usual. Or, if the allegations against Binance turn out to be true, Binance is forced to follow laws it always should have in the first place (which benefits customers).

Either way, both lawsuits will take years before they come to a close. But in the short term, analysts predict that this legal action won’t significantly affect crypto traders as both Coinbase and Binance continue to operate normally.

Security or Not?

The SEC didn’t only deliver blows to Binance and Coinbase last week. The agency also targeted individual cryptocurrencies—across both lawsuits, it declared 16 tokens as securities. Here are the coins impacted, should your portfolio need a little reassessment.

Most notably, both lawsuits mention Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Algorand (ALGO), Axie Infinity (AXS), The Sandbox (SAND), and Decentraland (MANA).

  • The Binance suit specifically mentions Cosmos (ATOM), Binance Coin (BNB), Binance USD (BUSD), and COTI (COTI).

  • In Coinbase’s case, tokens declared securities include Flow (FLOW), Nexo (NEXO), Chiliz (CHZ), Near (NEAR), Dash (DASH), Internet Computer (ICP), and Voyager Token (VGX).

Traders didn’t take the news too well—major altcoins such as SOL, ADA, and MATIC all slid more than 20% in the days following the SEC’s lawsuits.

Why it matters: If these tokens are officially classified as securities by regulators, they would likely be delisted from American trading platforms (following Robinhood’s example) and their trade in the U.S. would be severely restricted.

What’s surprising? Both lawsuits excluded ETH from securities lists. Pretty remarkable, considering that SEC Chair Gary Gensler implied that ETH (and all proof-of-stake cryptos, for that matter) classified as a security in the past.

Don’t Say “Metaverse” 

Apple introduced its new Vision Pro mixed reality headset last week.

The one word Apple explicitly didn’t use in the product announcement? “Metaverse.” Which means the company is taking a very different approach to virtual reality than fellow Big Tech player Meta, whose own VR headset is openly metaverse-focused.

Looking ahead: If the Vision Pro can deliver on its promise of creating immersive digital experiences, Apple could open the door for developers within and outside of the Web3 space to create new metaverse products—that people actually use.

In other news:

  • New evidence suggests that North Korea’s infamous “Lazarus” hacker group is behind the recent Atomic Wallet hack.

  • Tether invested in El Salvador’s $1 billion renewable energy initiative.

  • The CFTC won its lawsuit against Ookie DAO, proving that decentralized organizations are not immune to regulatory scrutiny.

  • DeFi trading volumes surged more than 400% after the Binance and Coinbase lawsuits.

Crypto Job Board

And that’s what you need on your radar today in crypto. Would you spend $3,500 on Apple’s new Vision Pro? Curious to hear your thoughts. Catch you back here next week!