What Impact Will SEC's Continuous Lawsuits Against Binance and Coinbase Have on the Cryptocurrency Market?

06/09/2023·1years ago

In recent days, the cryptocurrency market has been in turmoil as the U.S. Securities and Exchange Commission (SEC) has filed consecutive regulatory lawsuits against two major exchanges, Binance and Coinbase. The SEC has requested court approval to freeze Binance.US assets and issue a restraining order against Binance founder Zhao Changpeng, and there are reports of subpoenas being issued by a court.

The SEC's consecutive actions have caused a major upheaval in the crypto world, leading to a market downturn and a large number of investors seeking refuge by exchanging mainstream coins for stablecoins. Since the events, BNB has experienced a maximum decline of approximately 15%, nearing its lowest price in nearly a year. Worse still, there are unconfirmed reports that the SEC may file regulatory lawsuits against another giant in the crypto 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 cryptocurrency market? This article will analyze and answer these questions one by one.

Specific Allegations of Regulatory Charges

1. Regulatory Lawsuit Against Binance

SEC Allegations: Binance exchange and Zhao Changpeng are accused of embezzlement of customer funds, misleading consumers, and online fraud, among 13 suspected illegal activities.
The SEC complaint includes, but is not limited to, the allegation that 10 tokens, including SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI, are unregistered crypto asset securities. It also claims that BNB and BUSD are illegally registered assets of Binance.
The SEC also accuses Binance of intentionally evading U.S. supervision.

2. Regulatory Lawsuit Against Coinbase

SEC Allegations: Coinbase is suspected of operating as an unregistered securities exchange since 2019, effectively cashing out investor assets. It also defines cryptocurrencies such as SOL, ADA, MATIC, and FIL as securities and accuses Coinbase of providing unregistered securities trading.
More than ten U.S. regulatory agencies have accused Coinbase's staking program of violating state securities laws and imposed a $5 million fine on Coinbase for selling unregistered securities.

Responses from Binance and Coinbase and the Current State of Exchanges

Response from Binance and Zhao Changpeng:

First, they expressed disappointment with the SEC's actions, stating that they had previously cooperated with the SEC in good faith and assisted in the investigation to address concerns, but the SEC chose to act unilaterally and file a lawsuit.
They also stated that Binance is not a U.S. exchange, and the SEC's actions are limited, emphasizing that users' assets are safe and secure.
Zhao Changpeng also stated that the SEC's actions have caused significant harm to the crypto industry and clarified that the asset freeze order only affects Binance US, not Binance.com.
Zhao Changpeng also tweeted that Binance is prepared for deposits and withdrawals and will ensure the stable operation of the exchange's systems.
Binance.US announced the removal of over 40 cryptocurrency trading pairs and the suspension of its over-the-counter trading, but tokens such as BNB, SOL, and MATIC were not removed.

Response from Coinbase:

Coinbase CEO Brian Armstrong stated that Coinbase continues to operate as usual and there is no risk of customer runs, and the accused staking business will not be abandoned.
Chief Legal Officer and General Counsel Paul Grewal responded by stating that the SEC's actions harm Coinbase, a company with clear commitments to compliance, and that legislative solutions, allowing for transparent and fair regulatory rules, are the solution to doubts or regulatory issues, rather than litigation.

Direct Impact on the Market

Stock Prices Plummet, Coin Prices Drop Sharply

Upon the news of the SEC's allegations, Binance's stock price plummeted by nearly 8%, and Coinbase, which is listed on Nasdaq, fell by nearly 17% in early trading on the same day. The price of Bitcoin fell below $26,000 on the same day, its lowest value in nearly three months. Many other smaller coins experienced declines ranging from 5% to 25%.

Confidence Wanes, Assets Flow Out

Due to the sudden regulatory charges by the SEC and the targeting of Binance and Coinbase, both of which are pivotal platforms in the crypto world, investors have become extremely sensitive to risks following the FTX incident last year. The SEC's charges, including the request to freeze Binance US funds and the direct naming of the top ten mainstream coins, are bound to lead to some users selling off and exchanging into stablecoins such as USDC and USDT. According to data, on June 6th and 7th, there was a slight increase in on-chain DEX trading volume, indicating that investors are withdrawing assets to avoid risks, ceasing mining and staking activities, and adopting a temporary wait-and-see approach.

Media Support, Condemnation of the SEC

Many foreign media and industry influencers have come out in support of Binance and Coinbase, expressing their trust and confidence in them. The market uproar and coin price fluctuations have led to dissatisfaction among many people. The media outlet Blockworks directly criticized SEC Chairman Gary Gensler, believing that he is undermining the interests of the country and its people, and that his ability to regulate cryptocurrencies is inadequate, resorting to aggressive policies to stifle innovation. Influential media figures believe that digital assets are an inevitable trend, and if the SEC uses a regulatory approach of "I suspect you are involved, I will accuse you, but I have not publicly presented direct evidence," it is essentially driving the Web3 revolution out of the United States.

Anxiety Spreads, Who's Next?

After submitting a 136-page lawsuit against Binance and Zhao Changpeng to the U.S. Federal Court, the SEC turned its attention to Coinbase. The two consecutive charges, with similar reasons, have left other crypto platforms anxious. For example, on June 7th, the cryptocurrency trading platform Robinhood stated that it may delist the cryptocurrencies identified as securities in the lawsuits against Binance and Coinbase by the SEC, despite holding a brokerage license for securities trading. Robinhood believes that these projects lack disclosure standards for other secure investments, preventing them from being relisted.

Analysis of Reasons

Firstly, following the FTX incident, there has been an increased demand for the regulation of centralized exchanges, and the SEC aims to expand its authority and establish its credibility in cryptocurrency regulation. In fact, from the allegations, it can be seen that the SEC has accurately seized the "designation of certain cryptocurrencies as unregistered securities," a gray area, and has clearly identified over ten tokens as leading mainstream coins. It is evident that following the FTX incident, the SEC has shown determination in regulation and research in the field of regulation and policies.

From a positive perspective, reasonable regulatory policies are undoubtedly beneficial for investors and platform users, regulating the behavior of exchanges, protecting fund security, and avoiding the impact of events like the FTX collapse on the financial industry. This requires the most authoritative and professional regulatory body, and the SEC aims to play this role and gain greater authority in the crypto world.

Furthermore, both Binance and Coinbase mentioned "previous cooperation and negotiations" in their responses, and the $5 million fine directly imposed on Coinbase indicates that the SEC aims to collect substantial fines. From the bear market last year to the current market sentiment that has not fully recovered, Binance's revenue has grown tenfold over the past two years, reaching $12 billion in revenue in 2022, and Coinbase, which is not only listed but also has annual revenue in the tens of billions of dollars. For such large platforms, the SEC is likely to impose staggering fines, demonstrating regulatory strength and authority, and paving the way for more regulatory measures in the future, while also generating substantial direct income.

There is also a reason that raises suspicion, which is the suppression of the Binance brand. Following the FTX collapse, there are no market competitors in the U.S. that can compete with Binance, and a large amount of assets are stored on non-domestic exchanges, which is unsettling and uncomfortable for the U.S. Although regulatory charges have also been brought against the domestic platform Coinbase, compared to the 136-page complaint against Binance, many people have commented that "the favorite son was treated lightly."

Potential Long-Term Impact

Delay in the bull market, reduced market vitality, and decreased confidence in the market. After the bear market in 2022, the first half of 2023 saw an overall recovery, with several small waves of enthusiasm such as BRC20, meme coins, and the launch of new public chains, seemingly indicating improvement and increased investor confidence. However, the SEC's regulatory punches against exchange giants have reminded everyone of the FTX nightmare, and the market is likely to return to a trend of risk aversion and conservative investment.
If the SEC's regulatory lawsuit against Binance and Coinbase can be successful in various senses, it is not difficult to infer that its future regulation of the crypto world will continue. Reasonable regulation of platform behavior, stricter fund supervision, and better protection of user assets will be achieved.
While strict regulation will limit the circulation of capital to some extent and reduce the utilization of capital, it will also have a negative impact on the active innovation of project protocols. It can be foreseen that fewer funds will flow into incubating new projects, and fewer innovative models will receive regulatory approval, to some extent reducing the vitality of the crypto market.
If the SEC's future regulation is too harsh, it may even strike a blow to the U.S. web3 industry. Because based on the content of this lawsuit, it is clear that it is a gray area for crypto platforms, and in recent years, it has been a small matter that regulatory agencies can choose to regulate or not. However, the SEC's sudden refusal to privately resolve negotiations and instead directly file a lawsuit with "suspected involvement" is causing major concerns for many large projects. For large platforms like Binance and Coinbase, they may accept regulation and fines, but for other web3 startups in the U.S., they may not be able to withstand such a blow.
In response to the SEC's allegations, one of Zhao Changpeng's tweets stated, "We need to unite." Although the tweet did not specify the target, it should refer to all members of the cryptocurrency community. Because CZ also stated that the SEC's actions are a serious blow to the crypto industry, and he also wants to call on everyone to unite and have confidence in the crypto world. From the data, Binance has seen a large outflow of assets following the allegations, but with a large influx of capital from various sources, it has returned to its previous level. Guiding the confidence of Binance and CZ will undoubtedly help build market confidence and further unite the crypto community.

Conclusion

Based on the intensity of the SEC's statements on Twitter, it can be inferred that this regulatory battle will not end easily, and the scent of gunpowder will gradually intensify. It can be expected that it will not be short-lived, and the turmoil will continue. We hope that investors will pay close attention to crypto news in the near future and continue to follow the veDAO's continuous monitoring of the SEC's regulatory battle. At the same time, we also urge everyone to manage their risks prudently when investing.

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