After SEC sues Binance/Coinbase, BTC will be the only safe cryptocurrency

Authors: BlockingBitpushNews Lincoln Murr, Mary Liu

The U.S. Securities and Exchange Commission (SEC) has suddenly filed lawsuits against Coinbase and Binance, causing a stir and potentially setting a precedent for the cryptocurrency industry in the next decade and beyond, ultimately providing regulatory guidance. This article will analyze the lawsuit and its basis, possible outcomes, and what impact it will have on different cryptocurrencies.

Since Gary Gensler was sworn in as SEC chairman in 2021, the industry has been predicting stricter cryptocurrency regulation. Gensler previously mentioned during his time as a blockchain professor at MIT that many cryptocurrencies are likely securities, which means they should be regulated by the SEC and subject to U.S. government oversight. The SEC has already taken enforcement action against some industry companies and projects, such as Ripple Labs, LBRY, Kraken, etc. Now, it appears that before taking action against the two largest and most well-known exchanges, the SEC is likely to “practice” on smaller companies.

In the lawsuit, the SEC alleges that Coinbase acted as an unregistered exchange, broker, and notes exchange, meaning that it not only provides trading media, but also provides liquidity and intermediary services, leading to potential conflicts of interest.

On the other hand, Binance is facing more charges due to its independent Binance US exchange. The SEC stated that Binance founder Zhao Changpeng has significant control over Binance US and used it to list BNB, even though BNB is likely a security, and tried to deceive VIP users into entering the regular Binance exchange.

Both companies face charges related to the listing of unregistered securities. The SEC classifies 19 tokens as securities, including high market value coins such as BNB, Cosmos’ ATOM, Solana, Algorand, Cardano, Polygon, and Filecoin. Even Binance’s stablecoin BUSD has been labeled as a security, but strangely, Coinbase-supported stablecoin USDC has emerged unscathed.

As shown in the figure below, the SEC may have just taken a screenshot of Coinbase’s “tradable” page and selected top-tier assets, which can explain why ATOM was named in Binance’s lawsuit but not in Coinbase’s, even though both traded ATOM. This indicates a lack of understanding on the part of the SEC and may be a good sign for Coinbase’s fate.

The outcome of the lawsuit will forever change the cryptocurrency industry. If the SEC wins, it will have greater control over exchanges and cryptocurrencies that could be deemed securities. Of the two, Binance is more likely to lose because of the listing of the BNB coin and Changpeng Zhao’s involvement and the abundance of evidence. Additionally, the SEC has applied to freeze Binance US’s assets, a move it has not made against Coinbase.

If the SEC wins the lawsuit based on the argument that the listed cryptocurrencies are securities, this will fundamentally change the way the cryptocurrency industry operates. Placing the securities label on smart contract protocols such as Polygon and Solana will create many issues, such as how users are supposed to record what they paid for transaction fees, the legal status of validators, and whether any DeFi applications are legally authorized to exist. These labels can be more destructive to the long-term health of the industry than Binance shutting down and require a new classification for these types of assets.

If the SEC loses the lawsuit (which is unlikely given the number of charges and evidence), the cryptocurrency industry will be in a more favorable position than ever before. Looser regulation will provide companies with more opportunities to take risks and offer unique services, and cryptocurrencies will continue to exist safely.

Given all of the above information, the only cryptocurrency that is guaranteed to be safe is Bitcoin because it has been declared a non-security. Gensler has been wanting to classify Ethereum as a security, but neither of the lawsuits lists ETH, which means the SEC is either waiting to form stronger legal arguments against it after the case or they cannot find a basis. Regardless, ETH is safe now, but not forever.

The two lawsuits may take years to resolve, and many questions cannot be answered now. Although Gensler’s tenure was expected to bring some form of cryptocurrency regulation, unfortunately, it has come in the form of charges and lawsuits rather than collaborative and innovation-friendly solutions. Only time will tell how this event will change Web3, but one thing is certain: the outcome of this case will not affect the promise of blockchain to create a more decentralized, transparent, and censorship-resistant internet.

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