SEC Sues Binance And Coinbase

When they write the history of crypto, 2023 will be the year the regulatory crackdown came to a head. Whether it’s attacks against staking, cutting off the industry’s access to banking, poorly-researched “reports”, or never-ending attacks from the SEC, it’s clear our regulators wish for nothing more than the demise of crypto.

And now the SEC has taken one of their biggest shots yet, suing dominant crypto exchanges Binance and Coinbase on back-to-back days.

But, although the suits were similar, the situations are completely different.

Binance In Some Serious Trouble

The SEC has been onto Binance for months now, and this suit is the culmination of those efforts. In short, it doesn’t look good for Binance:

• Binance, BinanceUS, and Binance CEO Changpeng "CZ" Zhao are being charged for offering unregistered securities in the form of Binance’s BNB token and BUSD stablecoin

• The SEC also alleges that Binance was commingling user funds, that CZ was secretly controlling BinanceUS, and that Binance allowed US citizens to illegally trade on the platform

  • These claims are so serious that the SEC is now requesting to freeze assets held by BinanceUS and defendants, including CZ – a move that we have never seen before. In other words, they strongly believe Binance has been accessing and using user funds, and are now concerned that they could do so again

• Furthermore, the SEC alleges that Bi­nance and Zhao mis­used cus­tomers’ funds by di­verted them to a trad­ing firm called Sigma Chain, which en­gaged in “ma­nip­u­la­tive trad­ing” that made Bi­nance’s vol­ume ap­pear larger than it ac­tu­ally was

• Binance’s staking service is being charged for violating securities law

• Binance and its operating company are also in trouble for failing to register with the SEC

• And lastly, in normal SEC fashion, they are using this opportunity to regulate by enforcement, this time alleging that the tokens for Solana, Cosmos, and Polygon are securities

We are definitely not fans of how the SEC goes about their business, but it looks like they might have a case with this one. Especially when, according to internal chat logs, Binance’s former Chief Compliance Officer admits, “We are operating as a fking unlicensed securities exchange in the USA bro”.

Binance is going to fight back… but between this suit and the CFTC one, their future in the USA looks bleak. Needless to say, and as if we haven’t said it enough, if you have digital assets on BinanceUS, now is probably a good time to get out.

Next Up, Coinbase

As many readers know by now, the SEC has also been bullying Coinbase for months now, and to no surprise, are also charging the exchange. Here’s the gist of what Coinbase is getting slapped with:

• Operating as an unregistered broker, exchange, and clearing agency

• Federal security law violations from Coinbase’s Prime, Wallet, and staking products

• Providing trading services for multiple illegal securities

The suit is absolutely ridiculous on multiple levels:

• Coinbase has tried to come in and register with the SEC multiple times. The SEC never lets them

• The SEC reviewed Coinbase’s business in 2021 before allowing it to go public (What changed between then and now?)

• And to top it off, we can’t forget that the federal government actually still uses Coinbase to sell its seized crypto. So, according to the SEC, the federal government is technically using an illegal exchange. You really can’t make this stuff up.

Like Binance, Coinbase is prepared to fight. But, unlike Binance, we believe Coinbase has a strong chance to win.

Our Thoughts

It's important to recognize that the crypto community was swift in assigning blame to the SEC in both instances.

We understand why.

From the inception of crypto in the US, the SEC has consistently been perceived as unfair towards crypto pioneers. The progress made on any regulatory framework has been pitiful at best. Moreover, the SEC has been notably unsuccessful in detecting FTX's fraudulent activities and safeguarding investors from entities like Greyscale, Voyager, Genesis, BlockFi, and so forth. These oversights have resulted in billions of dollars lost and have adversely impacted millions of Americans.

In light of the Binance allegations, however, one could make that argument that the SEC has finally done something right. CoinSnacks has openly shared our concerns about Binance. If the reports of commingled and misused user funds are indeed accurate, can we really fault the SEC for finally striking down hard on the exchange or attempting to implement a freeze order? Is this an overstep of their authority, or is the SEC genuinely attempting to protect US investors?

We can't say for certain. However, what remains clear, irrespective of the outcomes of these cases, is that the US needs visionary leaders, not inept regulators who seemingly go out of their way to work against, rather than with, crypto companies.

So far, the SEC's actions – especially when it comes to companies like Coinbase – have done nothing to dispel these concerns.

Coming To A Head

Government lawsuits against major crypto companies are never fun, and it’s especially not fun for Coinbase shareholders (down 13% since the announcement), but it’s not all doom and gloom...

The Coinbase suit especially will provide a sense of finality to the regulatory question. If they win, Gensler (who has only 17 months left on his term) loses a lot of steam. If they lose, regulated crypto in the US is most likely cooked for the foreseeable future.

So, there’s a lot on the line here, but it’s our best versus their best. You can’t ask for much more than that.