What impact will SEC’s consecutive lawsuits against Binance and Coinbase have on the cryptocurrency market?

These days, the cryptocurrency market has been in a state of turmoil, with the US Securities and Exchange Commission (SEC) launching regulatory lawsuits against two major exchanges, Binance and Coinbase, and requesting that the court approve the freezing of Binance.US assets and a restraining order against Binance founder Zhao Changpeng. One court has even issued a subpoena.

The SEC’s consecutive actions have caused a great disturbance in the crypto world, with the market plummeting and a large number of investors hedging their bets by exchanging mainstream currencies for stablecoins. Since the incident, BNB has fallen by about 15%, close to its lowest price in a year. What’s worse, there are rumors that the SEC may bring regulatory lawsuits against another giant, the cryptocurrency custody platform Robinhood, next week.

Is the SEC’s regulation of Binance and Coinbase reasonable? What is its purpose? What impact will such a storm of regulation have on the crypto world? This article will analyze and answer these questions one by one.

Specific contents of the regulatory charges

1. Regulatory lawsuit against Binance

  • SEC’s allegations: Binance Exchange and Zhao Changpeng have committed 13 illegal acts, including embezzlement of customer funds, misleading consumers, and online fraud.

  • The SEC complaint includes, but is not limited to, the following 10 tokens, which are unregistered cryptographic assets securities: SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, COTI. The SEC also claims that BNB and BUSD are illegal registered assets of Binance.

  • The SEC also alleges that Binance intentionally evaded US supervision.

2. Regulatory lawsuit against Coinbase

  • SEC’s allegations: Coinbase has been illegally operating as an unregistered securities exchange since 2019, indirectly cashing out investors’ assets. It also defines cryptocurrencies such as SOL, ADA, MATIC, and FIL as securities and accuses Coinbase of providing unregistered securities trading.

  • More than a dozen regulatory agencies in the United States have accused Coinbase’s pledge program of violating state securities laws and fined Coinbase $5 million for offering unregistered securities for sale.

Binance and Coinbase’s Response and Exchange Status

Response from Binance and Changpeng Zhao:

1. First, express disappointment with the SEC’s actions, stating that they had previously had sincere negotiations with the SEC and cooperated with the investigation to address concerns, but the SEC chose to act unilaterally and file a lawsuit.

2. They then go on to say that Binance is not a US exchange, and the SEC’s actions are limited, emphasizing that users’ assets are safe and secure.

3. Changpeng Zhao also states that the SEC’s actions are very damaging to the crypto industry, and clarifies that the asset freeze order only affects Binance US, and Binance.com is not affected.

4. Zhao also tweeted that Binance is prepared for deposits and withdrawals and will ensure the stable operation of the exchange’s systems.

5. Binance.US announced the removal of more than 40 cryptocurrency trading pairs and suspended their over-the-counter trading, but coins like BNB, SOL, and MATIC were not removed.

Response from Coinbase:

1. Coinbase CEO Brian Armstrong stated that Coinbase is running as usual and there is no risk of customer run on the bank, and the accused pledge business will not be abandoned.

2. The Chief Legal Officer and General Counsel, Blockingul Grewal, responded by stating that the SEC’s actions harmed companies like Coinbase that have a clear commitment to compliance, and that legislative solutions allowing for transparent and fair street rules to be established instead of lawsuits are needed to address regulatory issues.

Direct Impact on the Market

Stock prices plummet, coin prices fall sharply

As soon as the SEC’s allegations were announced, Binance’s stock price dropped by nearly 8%, and Coinbase, which is already listed on NASDAQ, fell by nearly 17% in early trading that day. The price of Bitcoin fell below $26,000 that day, its lowest level in nearly three months. Many other smaller coins were affected, with weekly declines ranging from 5% to 25%.

Confidence shaken, assets flow out

Due to the SEC’s sudden regulatory allegations, as well as the fact that Binance and Coinbase, as key players in the cryptocurrency community, were both named in the allegations, investors are extremely sensitive to risk following last year’s FTX scandal. The SEC’s allegations of freezing BinanceUS funds and directly naming the top ten mainstream coins are bound to cause some users to sell and exchange them for stable coins like USDC and USDT. According to data statistics, on June 6th and 7th, there was a small increase in on-chain DEX trading volume, which was caused by asset outflows from investors to avoid risk and maintain a temporary wait-and-see state by stopping mining and pledging.

Media Support, SEC Criticism

Many foreign media outlets and industry insiders have come out in support of Binance and Coinbase, expressing their trust and confidence in them. Due to the market hype and price fluctuations caused, many people are dissatisfied. The foreign media Blockworks directly criticized SEC Chairman Gary Gensler in a column, believing that he has harmed the interests of the country and the people and that his ability to regulate cryptocurrencies is insufficient. Instead, he has adopted a radical policy to stifle innovation. The major media outlets believe that digital assets are an inevitable trend, and if the SEC uses such a regulatory approach of “I suspect you are involved, I accuse you first, but I have not yet publicly presented direct evidence,” it would simply drive the Web3 revolution out of the United States.

Anxiety spreads, who’s next?

First, the SEC submitted a 136-page complaint to the US Federal Court against Binance and Zhao Changpeng. Just as everyone was focused on this, they pointed their finger at Coinbase. Two consecutive accusations, similar reasons, have made other crypto platforms anxious. For example, on June 7, the cryptocurrency trading platform Robinhood said that it may delist the cryptocurrencies that the SEC has identified as securities in its lawsuits against Binance and Coinbase. Although the platform has a brokerage license for securities trading, Robinhood believes that other security investments in these projects lack disclosure standards, making it impossible for them to come back online.

Reason Analysis

First of all, after the FTX incident, there has been an increased demand for regulation of centralized exchanges, and the SEC wants to expand its own voice in cryptocurrency regulation and establish its authority. In fact, from the charge documents, it can be seen that the SEC has accurately grasped the gray area of “recognizing certain cryptocurrencies as unregistered securities,” and has clearly identified more than ten tokens as mainstream coins that rank high. It can be seen that after the FTX incident, the SEC has become more determined in regulation and has done research in the field of regulation and policies.

From a positive perspective, reasonable regulatory policies are undoubtedly a good thing for investors and platform users, regulating the behavior of exchanges, protecting fund safety, and avoiding the blow to the financial industry caused by events such as the FTX explosion. So there needs to be the most authoritative and professional regulatory agency, and the SEC wants to play this role and have a greater voice in the crypto world.

Furthermore, both Binance and Coinbase have spoken of “previous cooperation and negotiation” in their responses, and the $5 million direct fine clause for Coinbase suggests that the SEC wants to collect a substantial fine. From last year’s bear market to the present market that has not yet shaken off the doldrums, centralized exchange Binance’s revenue has grown tenfold in the past two years, reaching $12 billion in revenue in 2022. Coinbase, which is not only listed but also has annual revenue in the tens of billions of dollars. For such a large platform, the SEC is likely to impose a staggering fine, which can demonstrate regulatory strength and authority, pave the way for more regulatory measures in the future, and be a huge direct income.

Another reason that cannot help but be suspected is the suppression of the Binance brand. After the FTX incident, there are no market competitors in the United States that can compete with Binance, and a large amount of assets are stored on exchanges located outside the United States. This situation is indeed unsettling and uncomfortable for the United States. Although it has also filed regulatory lawsuits against the local platform Coinbase, compared with Binance’s 136-page complaint, many people have commented that “the son is too lightly beaten.”

Possible Long-term Impacts

1. The bull market will be delayed, market vitality will decrease, and market-sensitive confidence will decline. After experiencing the 2022 bear market, the overall market warmed up in the first half of 2023, and there were small waves of mini-booms, such as BRC20, meme coins, and new public chain launches. Everything seems to be getting better, and investor confidence is increasing. However, the regulatory crackdown on exchange giants reminds everyone of the nightmare of FTX, and the market will return to the trend of risk aversion and conservative investment.

2. If the SEC’s regulatory lawsuit can be successfully settled in various senses, it is not difficult to infer that its future regulation of the crypto world will come one after another. Reasonably regulate platform behavior, stricter fund supervision, and better protection of user assets.

3. At the same time as strict regulation, to a certain extent, it will limit the circulation of capital and reduce the utilization rate of capital, which will actually hit the active innovation of project protocols. It is foreseeable that less funds will flow into incubating new projects, and fewer innovative models will be allowed to comply, which will to some extent reduce the vitality of the crypto circle.

4. If the SEC’s future regulation is too strong, or even a blow to the US web3 industry. Because from the content of this lawsuit, it is obviously a gray area of the crypto platform, which has been a small matter that regulatory agencies can manage or not manage in recent years. However, the SEC’s sudden refusal to resolve the negotiation privately and directly sue with “suspected involvement” is really worrying for major projects. For large platforms such as Binance and Coinbase, they can accept regulation and fines as a compromise, but for other web3 startups in the United States, they may not necessarily withstand such a blow.

5. Faced with SEC charges, one of Zhao Changpeng’s tweets said, “We must unite”. The target was not specified, but it should be referring to everyone in the entire cryptocurrency circle, every member. Because CZ also expressed that SEC’s actions were a serious blow to the cryptocurrency industry, and he wanted to call on everyone to unite and have confidence in the cryptocurrency circle. From the data, Binance Exchange also moved from a large outflow of assets that were accused to large capital inflows from various bigwigs, returning to the previous stock level. Guiding the confidence of Binance and CZ will inevitably help to establish market confidence and make the cryptocurrency circle more united.

Conclusion

Based on the intensity of SEC’s tweets, it can be inferred that this regulatory battle will not end easily, and the gunpowder smell is gradually getting stronger. What we can predict is that its duration will not be short, the scope will not be small, and the turmoil will continue. We hope that investors will pay more attention to the cryptocurrency circle news recently, and continue to pay attention to the follow-up of the SEC regulatory battle with veDAO. At the same time, we also call on everyone to control their own risks and invest cautiously.

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