Following a lawsuit against Binance, the U.S. Securities and Exchange Commission (SEC) has sued another cryptocurrency exchange, Coinbase, accusing both platforms of operating as unregistered securities exchanges.
Looking back, after the FTX crash, U.S. regulatory agencies have clearly increased their regulatory efforts on the cryptocurrency industry, with law enforcement actions becoming more frequent.
Industry insiders analyze that the U.S. goal of regulating and squeezing the cryptocurrency market is to protect investors and ensure that this emerging market is not dominated by illegal activities and fraud.
U.S. SEC "Hammering" Two Major Exchanges
On June 5 local time, the U.S. SEC officially sued Binance, the world's largest cryptocurrency exchange by trading volume, and its CEO Changpeng Zhao. The lawsuit accuses Binance of issuing Binance Coin and stablecoin BUSD without registration, alleging its involvement in widespread fraud, conflicts of interest, lack of disclosure, and intentional evasion of laws.
Just a day later, on June 6, the U.S. SEC announced a lawsuit against Coinbase for violating securities laws, accusing Coinbase of allowing users to trade cryptocurrencies that essentially are unregistered securities, disregarding securities law and evading related disclosure requirements.
Hu Jie, a professor at Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, told Metaverse NEWS that the U.S. SEC's actions are actually normal moves to clarify issues in the cryptocurrency industry.
In Hu's view, events such as the FTX crash exposed illegal behaviors in the cryptocurrency industry like misappropriation of customer funds, false trading, and price manipulation that violate securities laws. Exchanges like Binance and Coinbase haven't followed the norms of securities laws in their operations. From a standpoint of protecting investors, U.S. regulators need these exchanges to comply with securities laws.
In addition to the lawsuits, the U.S. SEC also requested an emergency freeze of Binance's U.S. platform assets.
Yujianing, the executive director of the China Mobile Communications Federation's Metaverse Industry Committee and honorary chairman of the Hong Kong Blockchain Association, believes that Binance and Coinbase, as two globally renowned exchanges, being sued will lead to public questioning of their compliance and reputation. This could lead to other exchanges and cryptocurrency companies facing stricter regulatory scrutiny and compliance requirements.
"These actions could also trigger investor worries and uncertainties about the cryptocurrency market. Investors may pay more attention to the compliance and risks of crypto assets and adopt a more cautious attitude toward investment decisions. This could affect trading volumes and investment activities in the crypto market to some extent," Yujianing told reporters.
Zhu Youping, the rotating chairman of the China Communications Industry Association's Blockchain Committee, also expressed a similar view.
"These actions could have far-reaching impacts on the cryptocurrency market," Zhu said. First, they might lead to a drop in investor confidence, causing fewer people to trade in the crypto market; second, they could prompt other countries to adopt similar measures to strengthen regulation of the cryptocurrency market; finally, these actions could cause cryptocurrency exchanges to adopt stricter compliance procedures to ensure they comply with relevant regulatory requirements.
Law Enforcement Actions Significantly Increased After FTX Crash
It's worth noting that after the FTX crash in 2022, the U.S. Securities and Exchange Commission significantly increased law enforcement actions related to cryptocurrencies.
In the six months before FTX's bankruptcy, the U.S. SEC took about six law enforcement actions. In the six months after FTX went bankrupt on November 11, 2022, the U.S. SEC's law enforcement actions related to cryptocurrencies jumped to 17, an increase of 183% over the previous period.
The U.S. took enforcement actions against stablecoins, crypto institutions, and exchanges. For example:
On February 13, 2023, the U.S. SEC issued a "Wells notice" to Paxos, a crypto infrastructure provider, over its involvement with Binance USD stablecoin, claiming that the stablecoin is an unregistered security.
On February 14, the New York Department of Financial Services issued a consumer alert "Regarding BUSD issued by Paxos", stating that Paxos, a limited purpose trust company supervised by NYDFS, has been ordered to stop minting the issued BUSD.
On March 22, the SEC announced a lawsuit against crypto entrepreneur Justin Sun and his three wholly owned companies Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), accusing them of offering and selling cryptocurrency securities Tronix (TRX coin) and BitTorrent (BTT coin) without registration.
On March 27, the U.S. Commodity Futures Trading Commission (CFTC) announced on its official website that it has filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois, accusing Changpeng Zhao and three entities operating the Binance platform of multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations.
In March, the U.S. SEC also sent a Wells notice to Coinbase, warning that the company might have violated U.S. securities laws.
"In recent years, the U.S. has squeezed the crypto circle mainly through strengthening regulation, taking legal action and enforcement, as well as strengthening compliance requirements and investigations," Yujianing told reporters. The starting point of these squeezing methods is to ensure the compliant operation of the crypto market, prevent illegal activities, protect investor interests, and maintain financial stability.
In Zhu's view, U.S. regulatory departments have always had a love-hate relationship with cryptocurrencies, wanting to hammer regulation but fearing losing the edge in this innovation race.
