Over the last few weeks, crypto news has been centered around the U.S. Securities and Exchange Commission charges brought against Binance. These charges against Binance were closely followed by another filed against Coinbase by the same commission.
Binance is the world’s largest crypto exchange, providing crypto users an avenue for buying and selling cryptocurrencies for a small fee. This is not the first time Binance has faced regulatory issues in the U.S. In 2019, the company had to create a different exchange independent of Binance.com, Binance.US, that would be subject to U.S. regulations and could operate in the country.
However, SEC claims that Binance.com did not completely make Binance.US independent of its general operations. Binance and its CEO, Zhao, are now facing 13 SEC charges that border creating artificial trading volume, unlawfully soliciting high-value U.S. customers and investors, and misleading the public about SEC’s oversight.
SEC also has evidence that Binance knew they were contravening the U.S. Securities law. The charges brought against Binance are similar to that filed by the Commodity Futures Trading Commission earlier this year.
How this affects the crypto industry
One common denominator in the SEC charges brought against Binance and Coinbase is the operation by both exchanges of unregistered securities. As expected, the news sent the crypto industry reeling, and investors pulled out about $790 million from Binance in 24 hours. Although they denied all the allegations and cooperated in working with SEC during its investigations, these lawsuits are bound to affect the crypto industry in one form.
The unique selling point of crypto is decentralized and borderless, and the constant barrage of lawsuits could lead to crypto operating within the confines of traditional systems. Many leading crypto exchanges have been clamoring for crypto-specific rules that will regulate the crypto industry as a whole. Without this, lawsuits will arise as crypto platforms do not know the guidelines to comply with regulators.
Closely related to this is the tendency for people to lose confidence in the crypto industry. The industry’s volatile nature and the constant barrage of lawsuits against top crypto could affect people’s attitudes toward trading.
In addition, the allegations of SEC might stifle innovation and creativity. Entrepreneurs and developers will now be wary of creating products that could improve financial systems and lead to more inclusion due to the “enforcement-only approach” taken by SEC.
Bottom line
June 16, 2023, saw the SEC and Binance.US reaching a settlement agreement to end all the charges filed. Binancee.US will pay a $200 million penalty and ensure compliance with several securities laws. Furthermore, Binance.US will stop offering certain services in the U.S. and will register with the SEC as a broker and clearing agency. The court has also approved this settlement.
The settlement is a good move to prevent a long-drawn court battle. However, regulators still need to create crypto-specific rules, or the cycle will only repeat itself with other crypto exchanges.
