This week is destined to be a week worth remembering for the cryptocurrency industry.
On Monday, the US Securities and Exchange Commission (SEC) filed a lawsuit against the world’s largest cryptocurrency exchange, Binance, and its CEO Changpeng Zhao, who face 13 charges, including that the various tokens listed are “unregistered securities,” that customer assets are mixed with their own assets, that US customers are allowed to use Binance Globe, and that virtual trades are used to intentionally inflate the platform trading volume of Binance.US.
Binance responded promptly, stating that the company has always been actively cooperating with the investigation and working towards a negotiated settlement, but the SEC chose to take enforcement action directly. Binance will vigorously defend the platform, fight against the SEC, and continue to work tirelessly to become a safe and trustworthy platform.
Binance then released a Strong Together statement again, stating that there is no misappropriation of user assets, wallet address transparency, no unsecured loans, no large political donations, and no large-scale media/sports/entertainment sponsorships. They also said that they will continue to build for users and stand up for the cryptocurrency industry.
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On Tuesday, the US SEC sued US cryptocurrency compliance trading platform Coinbase, accusing it of failing to register with the SEC as an exchange, clearing agency, and broker-dealer, and explicitly identifying Coinbase’s pledged services and a large number of tokens traded on the platform as “unregistered securities.”
Currently, ten states in the US have taken legal action against Coinbase’s pledged services, including Illinois, Vermont, Alabama, Kentucky, California, Maryland, Wisconsin, Washington, New Jersey, and South Carolina.
Coinbase responded on its official Twitter account, saying, “Cryptocurrency has come a long way, but it still has a long way to go in the United States. We’re ready!”
Obviously, Coinbase is also ready to fight the SEC to the end.
Coinbase CEO Brain Armstrong questioned the true purpose of the SEC’s lawsuit:
1. The SEC reviewed the business and allowed the company to go public in 2021.
2. Attempted to register multiple times, but the conclusion was that SEC had not opened registration channels.
3. The regulatory views of the SEC and the US Commodity Futures Trading Commission (CFTC) on cryptocurrencies are contradictory, and even there is no consensus on “what is a security and what is a commodity”.
4. The US Congress is still passing legislation to formally enact regulatory laws, but other crypto-friendly countries have directly enacted clear laws. The SEC has not issued a clear rulebook but has regulated through enforcement.
Why approve Coinbase’s IPO in 2021 and then sue to ban providing the same service two years later?
Therefore, compared with FTX, the true purpose behind the SEC’s heavy-handed crackdown on the two crypto giants in two days is questionable.
Ripple CEO Brad Garlinghouse joked that this was SEC’s attempt to “shift” the public’s attention away from the “FTX collapse”. SBF was the second-largest donor to Biden’s presidential campaign, and Biden appointed Gary Gensler as the current chairman of the SEC.
Some noteworthy differences in the two lawsuits:
1. SEC seems intent on “crushing” Binance
– Coinbase needs to repay all “ill-gotten gains” related to SEC’s alleged misconduct, as well as civil fines and other forms of investor relief. When Kraken reached a settlement with the SEC over issues related to its staking products in February, it was forced to pay a $30 million fine.
– Binance not only needs to pay similar fines but has also been permanently banned from engaging in securities and cryptocurrency trading business.
2. Coinbase is a “life and death” battle
On the other hand, compared with Binance, the struggle between Coinbase and the SEC is a “life and death” battle. Coinbase is more focused on the US market, with over 80% of its revenue coming from the US last year. While Coinbase may continue to operate normally in the short term, the SEC’s charges may cause reputation damage to Coinbase, leading to users withdrawing funds from the platform.
In addition, what is the cost if Coinbase settles with the SEC? If the regulatory agency wants to promote innovation goals through litigation rather than forming well-designed rules, what is the difference between this and standing idly by?
It is a good thing to remove the “Wild West” hat from the cryptocurrency industry in order to protect investors, but the SEC may have gone too far in taking enforcement action without clear legal guidance. This provides an opportunity for other countries to become safe havens for cryptocurrencies. Places like South America and the Caribbean are becoming more and more popular with cryptocurrency companies because they are more friendly and open in embracing cryptocurrencies than the United States.
Senator Cynthia Lummis, who has long been committed to introducing cryptocurrency regulatory bills to the United States, said in a statement that the SEC has failed to provide a registration path for digital asset exchanges, and worse, has not provided enough legal guidance to explain the difference between securities and commodities. The SEC continues to rely on law enforcement regulation, which continues to harm the interests of investors. True investor protection requires the establishment of a sound legal framework that exchanges can comply with, rather than pushing the industry out of the United States. The US Congress needs to pass cryptocurrency regulatory bills as soon as possible.
This is by no means alarmist. Derek Boirun, founder of the Realio tokenization project for real world assets (RWA), recently complained in a blog post that “unfriendly regulators forced him to leave the United States.” The translation from Bai Zhe Research Institute is as follows:
This summer, in 2023, I will leave the United States indefinitely. As an American citizen born and raised and now 42 years old, my sole purpose in doing this is to protect my constitutional rights, family, and company from excessive government intervention. This is like a plot in a surreal novel, but this is my story.
I am the founder of Realio, a blockchain company that, as the name suggests, focuses on building digital infrastructure to put real world assets (such as real estate) on the chain. We started building this company full-time in 2018 and have invested a lot of time and money in its development. From the beginning, our core focus has been on compliance with regulations, because investing in real world assets, whether on the blockchain or not, usually requires compliance with securities laws. After all, investing in real estate is not new, and neither is securities law, so doing it “on the blockchain” sounds very feasible.
Fast forward to 2022, after surviving the economic collapse caused by the coronavirus pandemic (mainly due to the rapid growth of the crypto market), we are growing and optimistic about companies that comply with the issuance of safe tokens on our platform (tokens that are publicly issued under a legal and compliant regulatory framework). As we believe compliance is achievable, we typically ignore most of the narratives happening in the crypto industry, which happens to be where most of the funds go. Many people have become very rich by chasing “quick money”, whether or not they are anonymous, but we stick to our principles. We even chose to “tokenize” our own company through the issuance of compliant security tokens. Fortunately, we have managed to raise enough funds to sustain our development and construction for several years. We are very grateful for the support of companies such as Algorand, who invested in us through their token, ALGO (just today, I had to hear Gary Gensler refer to ALGO as an unregistered illegal security). If it were not for Algorand’s generous investment, as well as the price increase of ALGO, our financial situation might be very different.
From 2020 to 2023, most of our time was spent on compliance.
We launched a “tokenization” fund and spent a lot of money hiring top lawyers to register the fund with the SEC under the 40 Act. We spent more money on this than many start-ups spend on their entire operating budget. By the end of 2022, after multiple conversations with SEC staff to explain the structure, we were ready to submit the registration documents. Then the FTX bankruptcy happened. Shortly thereafter, through conversations with lawyers, I learned that the SEC is shutting down registration of all “tokenization” funds seeking approval. However, this was the only way we wanted to register or comply.
At the same time, we also applied for a Regulation CF portal license from FINRA, which was also a very expensive process…Like the SEC, we had multiple conversations with their staff to resolve all issues. However, after the FTX bankruptcy, FINRA requested a call with us to review our details again. We were prepared and answered all questions sincerely. However, we couldn’t help feeling that this call was just a “formality,” with staff repeating basic questions over and over, with the goal of making us give up or getting us into some kind of technical issue. After the call, we received their follow-up list of questions, which were very broad and even beyond the scope of our application. It was clear to us that FINRA could delay it for years, so we decided to put the application on hold until the new administration took office.
Most blockchain-based asset issuers do not actually have a registration path, not because of a lack of trying or a lack of compliance. I can attest to the fact that regulatory agencies are not fair or friendly to the crypto industry. I am not unfamiliar with the various strategies that regulatory agencies have adopted against us, which are typical bureaucratic ones.
However, the talented people in the crypto industry are working hard to build a better world financial system. This is not a game for us, nor is it politics. Many of us have left our traditional professions to do this. Now, we are also leaving the United States.
Money is the last battle for freedom. We will not sit idly by as you continue to control and manipulate us. Even though you hold positions, you do not have this power. You have no right to tell us what the market needs or doesn’t need. This is the kind of overextension that we fought for when we established this country. The capital market is suffocating due to regulation, which actually does not protect anyone other than the wealthiest people.
Leaving the United States is not easy either. I have a family who loves New York, and so on. But I have a responsibility to protect everything we have built, which means seeking a country that supports us in continuing to build.
We will not stop, and we will continue to build the digital new world that we have been working hard to create.
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