The cryptocurrency world has been turbulent in recent days. The U.S. Securities and Exchange Commission (SEC) has successively launched regulatory lawsuits against Binance and Coinbase, the two leading exchanges, and asked the court to approve Binance to freeze Binance.US assets and issue a restraining order against Binance founder Zhao Changpeng. One court has even issued a subpoena.
The continuous actions of the SEC have caused great turmoil in the crypto world, and the market has plummeted. A large number of investors have exchanged mainstream currencies for stablecoins for risk aversion. Since the incident, BNB has fallen by about 15%, close to its lowest price in a year. Worse still, according to uncertain news, the SEC may file a regulatory lawsuit against another giant, 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 stormy regulation have on the cryptocurrency world? This article will analyze and answer them one by one.
The specific content of the regulatory allegations
1. Regulatory prosecution of Binance
SEC charges: Binance Exchange and Zhao Changpeng for 13 suspected violations including misappropriation of customer funds, misleading consumers and online fraud.
The SEC complaint includes but is not limited to the following 10 tokens that are unregistered crypto asset securities: SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, COTI, and claims that BNB and BUSD are illegally registered assets of Binance.
The SEC also accused Binance of intentionally evading U.S. oversight.
2. Regulatory prosecution of Coinbase
SEC charges: Coinbase has allegedly been operating illegally as an unregistered securities exchange since 2019, cashing out investors' assets in disguise. It also defines cryptocurrencies such as SOL, ADA, MATIC, and FIL as securities, and accuses Coinbase of providing unregistered securities transactions.
U.S. regulators for more than a dozen weeks accused Coinbase of violating U.S. securities laws with its staking program and fined Coinbase $5 million for offering to sell unregistered securities.
Binance and Coinbase’s responses and current status of exchanges
Binance and Changpeng Zhao’s response:
1. First of all, we express our disappointment with the SEC’s accusations and state that we have previously conducted sincere consultations with the SEC and cooperated with the investigation to answer their concerns, but the SEC chose to act unilaterally and file a lawsuit.
2. It then stated that Binance is not a US exchange and the SEC’s actions are limited, and emphasized that users’ assets are safe and secure.
3. Zhao Changpeng said that this series of actions by the SEC is extremely harmful to the crypto industry, and clearly stated that the asset freeze order only affects Binance US, and Binance.com is not affected.
4. Zhao Changpeng also tweeted that Binance is ready for deposits and withdrawals, and will ensure the stable operation of the exchange's system.
5.Binance.US announced the deletion of more than 40 cryptocurrency trading pairs and the suspension of their over-the-counter transactions, but BNB, SOL, MATIC, etc. were not deleted.
Coinbase’s response:
1. Coinbase CEO Brian Armstrong said that first of all, Coinbase is operating as usual and there is no risk of customer runs, and the accused staking business will not be abandoned.
2. Chief Legal Officer and General Counsel Paul Grewal responded that the SEC's actions harm companies like Coinbase that have a clear commitment to compliance. If there are concerns or regulatory issues, the solution is legislation that allows for transparent formulation of fair rules of the road, rather than litigation.
Direct impact on the market
Stock prices plunged, and coin prices plummeted
As soon as the news of the SEC's accusation came out, Binance's stock price plunged instantly, falling by nearly 8%; Coinbase, which is already listed on the Nasdaq, fell by nearly 17% in the early trading of the same day. The price of Bitcoin fell below $26,000 that day, the lowest value in nearly three months. Many other small coins were affected, with weekly declines ranging from 5% to 25%.
Confidence is dampened and assets are flowing out
Due to the sudden regulatory accusation by the SEC, and the fact that Binance and Coinbase are both important platforms in the cryptocurrency circle, the shadow of FTX last year made investors extremely sensitive to risks. The SEC's accusation that the court should freeze BinanceUS funds and directly name the top ten mainstream currencies will inevitably cause some users to sell and exchange them into stablecoins such as USDC and USDT. According to statistics, on June 6 and 7, the transaction volume of on-chain DEX increased slightly. This is because investors stopped mining and staking to avoid risk after the market fluctuated, and remained in a temporary wait-and-see state.
Media supports, criticizes SEC
Many foreign media and industry bigwigs have come out to support Binance Coinbase, expressing their trust and confidence in them. Due to the market uproar and coin price fluctuations, many people are dissatisfied. Foreign media Blockworks directly criticized SEC Chairman Gary Gensler in a column, believing that he undermined the interests of the country and the people, and that he was incapable of regulating cryptocurrencies, but instead adopted radical policies to stifle innovation. Big V media believe that digital assets are an inevitable trend. If the SEC uses such a regulatory approach of "I suspect you are involved, I accuse you first, but I have not yet disclosed direct evidence", it is simply driving the Web3 revolution out of the United States.
Anxiety is spreading, who is next?
The SEC first filed a 136-page complaint in the U.S. federal court about Binance and Zhao Changpeng. Just when everyone was focusing on this, it pointed the knife at Coinbase. Two consecutive days of accusations and similar reasons have made other crypto platforms anxious. For example, on June 7, the cryptocurrency trading platform Robinhood said that it might delist cryptocurrencies that the SEC identified as securities in the lawsuit 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, which prevents them from going online again.
Cause Analysis
First, after the FTX incident, the demand for regulation of centralized exchanges has increased, and the SEC wants to expand its voice and authority in cryptocurrency regulation. In fact, it can be seen from the indictment that the SEC has accurately grasped the gray area of "determining that certain cryptocurrencies are unregistered securities" and clearly pointed out that more than a dozen tokens are all top-ranked mainstream coins. It can be seen that after the FTX incident, the SEC is determined to regulate and is researching regulatory areas and policies.
From a positive perspective, having a reasonable regulatory policy is certainly a good thing for investors and platform users. It can regulate the behavior of exchanges, protect the safety of funds, and avoid the impact of incidents like FTX on the financial industry. Therefore, there needs to be a most authoritative and professional regulatory agency, and the SEC wants to play this role and gain greater voice in the crypto world.
Furthermore, from the responses of Binance and Coinbase, both mentioned that "there had been cooperation in investigations and negotiations before", and the direct fine of Coinbase of 5 million US dollars, it is not difficult to see that the SEC wants to collect a hefty fine. From last year's bear market to the current market that has not yet gotten rid of the sluggish sentiment, the revenue of the centralized exchange Binance has increased 10 times in the past two years, reaching 12 billion US dollars in 22 years, and Coinbase is not only listed but also has an annual revenue of billions of US dollars. For such a large platform, the SEC is likely to issue an astonishing fine figure, which can not only demonstrate the strength and authority of supervision and pave the way for more regulatory measures in the future, but also a huge direct income.
Another reason that makes people suspicious is the suppression of Binance’s brand. Since the collapse of FTX, there has been no market competitor in the United States that can compete with Binance. A large amount of assets are stored in non-local exchanges. This is indeed unsettling and uncomfortable for the United States. Although the local platform Coinbase has also been sued, many people have commented that "the punishment is too light for the own son" compared to Binance's 136-page lawsuit.
Possible long-term impacts
1. The bull market has been delayed, market vitality has decreased, and market sensitivity and confidence have declined. After the bear market in 2022, the overall recovery in the first half of 2023 was also accompanied by several small booms such as BRC20, meme coins, and the launch of new public chains. It seems that everything is getting better and investor confidence is increasing. However, the regulatory blow to the exchange giants has reminded everyone of the nightmare of FTX, and the market will return to the trend of risk aversion and conservative investment.
2. If this SEC regulatory lawsuit can be successfully concluded in various senses, it is not difficult to infer that its regulation of the crypto world will come one after another in the future. The platform behavior will be reasonably regulated, the fund supervision will be stricter, and the user's assets will be better protected.
3. Strict supervision will restrict the circulation of capital to a certain extent, reduce the utilization rate of capital, and actually hit the active innovation of project agreements. It can be foreseen that less funds will flow into incubating new projects, and fewer innovative models will be allowed by compliance, which will reduce the vitality of the currency circle to a certain extent.
4. If the SEC's future regulation is too tough, it will be a blow to the US web3 industry. Because judging from the content of this lawsuit, it is obviously a gray area of the crypto platform, and it has been a small matter that the regulator can manage or not in recent years. However, the SEC's sudden refusal to resolve the negotiation privately and directly sued on the grounds of "suspected involvement" really worries major projects. Large platforms such as Binance and Coinbase can take a step back and accept fines, but for other web3 startups in the United States, they may not be able to withstand such a blow.
5. In response to the SEC's accusation, Zhao Changpeng said in one of his tweets that we must unite. There is no clear indication of the target, but it should refer to everyone and every member of the entire cryptocurrency community. Because CZ also said that the SEC's behavior is a serious blow to the crypto industry, he also wants to call on everyone to unite and have confidence in the cryptocurrency community. From the data, Binance Exchange has also returned to its previous stock from the large amount of assets that were just accused of being taken away and the large amount of capital deposited by various bigwigs. Guiding the confidence of Binance and CZ will inevitably help build market confidence and make the cryptocurrency community more united.
Conclusion
Judging from the strength of the SEC's statement on Twitter, this regulatory battle will not end simply, and the atmosphere will even become increasingly tense. What we can predict is that it will not be short in duration, will not be small in scope, and will continue to be turbulent. We hope that all investors will pay more attention to the news in the cryptocurrency circle in the near future, and continue to pay attention to the follow-up of the SEC's regulatory battle with veDAO. At the same time, we also call on everyone to control the risks they can bear and invest prudently.
