Recently, the most talked about and concerned thing is that the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Binance and its CEO Changpeng Zhao (CZ) and its two subsidiaries BAM Trading, BAM Management and Coinbase, accusing the above defendants of violating U.S. securities trading rules.
In the 136-page indictment, the SEC listed more than ten "major crimes" of Binance and CZ. The fierce words and strong accusations are rare even in the Crypto industry, which has been plagued by lawsuits for many years. Now, I will explain to you why the SEC is holding on to CZ!
First, let’s talk about the size of Binance! See the picture below for details!
Binance's trading volume, assets, and users are far ahead of other exchanges! This is hard power! At this time, Binance has eaten up more than half of the cryptocurrency cake, and some people will definitely be jealous! So there is the SEC suing Binance later!!
SEC Chairman Gary Gensler has taken office since April 2021. Gensler previously served as a professor at the Massachusetts Institute of Technology (MIT), teaching global economics and management practices.
This means that Gensler himself had a history of working with SBF's parents, Joseph Bankman and Barbara Fried, as both Joseph and Barbara were senior professors at MIT Law School.
SBF himself is one of Biden's largest donors. Gensler, a Democrat, was able to take over the SEC only after Biden took office. There is a lot of room for imagination behind this.
SBF and Gensler seem to have maintained a relatively good relationship. The New York Post once revealed that Gensler had met directly with SBF several times six months before the FTX incident; some venture capital professionals also accused Gensler of favoring FTX and treating other exchanges such as Coinbase and Kraken differently.
This is also why we have never heard of the SEC suing FTX before. Even after the subsequent collapse, we did not see the SEC stand up to judge SBF and FTX! This is terrifying when you think about it carefully!
Binance and FTX
It has been more than half a year since the FTX collapse, and perhaps many people no longer remember the details of that time.
The fundamental reason for FTX's demise is the misappropriation of assets, but as of now, many people still believe that it was the blow from CZ and Binance that took away FTX's last straw.
On November 6, when CZ tweeted that he would “liquidate all FTT holdings (about $530 million at the time)”, FTX received a large number of withdrawal requests, and FTT fell all the way! Then it collapsed!
SEC and Coinbase
The SEC strikes again! Last night (6), it sued Coinbase Exchange for violating securities laws, causing the FUD sentiment in the crypto market to become even more serious!
The SEC accused Coinbase of providing trading, brokerage and clearing services for unregistered securities and charging fees for staking services. Coinbase's lawsuit by the SEC is particularly disadvantageous because more than 80% of Coinbase's revenue last year came from the United States, and now its business model is facing a near-existential threat.
The potential reputational damage caused by the SEC's claims could lead to user withdrawals; in addition, Coinbase's first-quarter revenue was less than a third of its peak at the end of 2021, and its stock price has fallen 20% in the past two days.
SEC requires Coinbase to disgorge ill-gotten gains and pay civil penalty
Coinbase mixes customer funds and crypto assets of similar nature, so the SEC asks the court to permanently prohibit Coinbase and other related persons from directly or indirectly violating the Securities Act; and to require the defendants to return all illegal gains obtained by violating the Exchange Act on a joint and several basis.
At the same time, Coinbase is also required to pay civil penalties under the Exchange Act and the Securities Act; and the court is required to grant appropriate or necessary relief under the Exchange Act to protect the interests of investors.
In response to the SEC lawsuit, Coinbase said that if necessary, they will take the legal battle with the SEC to the U.S. Supreme Court! This means that Coinbase is not afraid at all!
SEC and CFTC
The US SEC has successively directed its regulatory scythe towards Binance and Coinbase, which has dominated the news. On the other hand, although the Commodity Futures Trading Commission (CFTC) has not made any major moves, its Chairman Rostin Behnam attended a House of Representatives hearing yesterday (6) to discuss the regulation of the cryptocurrency market. At the hearing, the committee chairman even criticized the SEC for improper law enforcement and supervision.
According to Behnam, the SEC should have authority over assets classified as securities, but he added:
The fact is that Bitcoin, the largest cryptocurrency, is a commodity, as determined by a U.S. court.
And under U.S. law, it is unregulated.
Behnam further pointed out that what regulators urgently need now is additional regulatory power over the crypto commodity sector, which means that they will start from a different perspective from the SEC, presumably not focusing on the securities framework, but on formulating a specification suitable for regulating crypto commodities; Glenn Thompson, chairman of the committee, added:
Enforcement regulation is not the appropriate way to manage markets, adequately protect customers, or promote innovation.
Profits are fundamental
From Gensler’s point of view, he has never been soft on other industry institutions besides FTX since he took office as SEC. As the largest and most profitable centralized entity in the Crypto industry, Binance’s name may have been on Gensler’s “execution list” as early as the first day.
In other words, the SEC’s action against Binance may never be a question of “if” but rather a question of “when”.
The SEC's actions will only have a short-term impact on the price of the currency. In the long run, I am still optimistic about Binance!