The legal battle, however, is far from being won, as the SEC and the current US President’s administration have the possibility to make US crypto industry’s life very difficult.
The degree of outrage expressed by the global crypto community in response to these lawsuits is truly unprecedented. This points to a heated debate and a consolidated effort to change the anti-crypto narratives.
Also, by revealing the lawsuits, the SEC let us in on its reasoning concerning different types of cryptoassets, and this reasoning can have some influence on the global crypto space.
What happened
On Monday, the SEC sued Binance US for comingling funds, defrauding investors, and operating as an unregistered broker, dealer and clearing house.
On Tuesday, the Commission accused Coinbase of operating as an unregistered broker too.
This was not unexpected: for a long time, the SEC has been claiming that cryptoassets were in fact securities, without giving any details. This implied that crypto exchanges were breaking the securities law by offering those cryptoassets to their clients.
In case of Binance US, the rumors of the DoJ investigating the company have also circulated for some time already.
The crypto markets have first reacted with fear, dipping –7% after the news about Binance US, but then recovered all of it to the news about Coinbase, visibly relieved that the SEC did not make any unexpected moves.
Insights from the lawsuits
The wording of the lawsuits (including the words that are absent) clarifies some of the SEC’s position on crypto. Here are the main conclusions we can draw:
Bitcoin and other PoW-base cryptocurrencies are safe
SEC’s chair Gary Gensler has already mentioned that Bitcoin is decentralized enough to not be considered a security. Since the lawsuits do not mention other Proof-of-Work-based cryptos, such as $DOGE or $LTC, we could assume that in the eyes of the SEC the securities legislation does not concern PoW blockchains. At least for now.
Ethereum is not mentioned as security
The second-biggest crypto by market cap is notoriously absent from the lawsuits. This could be due to the fact that it started as a PoW blockchain, or some other reason.
Ripple is also missing in the securities list
It is unlikely that the 6-biggest cryptocurrency has been forgotten while filing the paperwork. It would stand to reason that the SEC did not dare accusing $XRP of being a security… because it had already done so. After years of legal proceedings, SEC v Ripple case is now nearing its conclusion, and it will be the court that will decide it’s the $XRP status.
$SOL, $ADA, $MATIC, $FIL, $SAND, $AXS, $CHZ, $FLOW, $ICP, $NEAR, $VGX, $DASH, $NEXO are in trouble
These cryptoassets have been explicitly mentioned as “crypto asset securities”, which would imply that the existing securities regulations apply to them as well. Even those that the industry claims impossible to implement, like some reporting obligations.
Some fintech companies, like Robinhood, are already said to be delisting these assets to avoid any trouble with the SEC.
Staking is in jeopardy
The SEC uses the ancient Howey test (dated 1946) to define whether an activity is considered investment. From this angle, staking crypto on Proof-of-Stake blockchains is considered a loan, which puts staking services, including those provided by Coinbase, at risk.
How did the industry react?
CEO of Binance, Changpeng “CZ” Zhao, fiercely denied the accusations, reminding his Twitter audience how inefficient the SEC was in preventing the FTX fraud. He also pointed out that Binance US was an isolated entity, and global Binance services are not in danger.
As to Coinbase, the exchange is bracing for a long legal battle.
The regulators did not stay aside. Yesterday, the US House Financial Committee scheduled a hearing aiming to “provide clarity for the digital asset ecosystem”. The hearing is supposed to be held on June 13, and the crypto community hopes it could mark the beginning of a legislative process that could someday produce a comprehensive crypto legislation.
After all, the SEC’s actions, widely considered an overreach, might have mobilized the crypto community just in the right way to be able to defend itself in the US.
Written by D.Center
