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A spate of lawsuits against two of the world's largest cryptocurrency companies is sending chills through America's fragile ecosystem of digital assets.
The Securities and Exchange Commission has filed two scathing complaints within 24 hours accusing Binance and Coinbase of operating illegal stock exchanges in the United States. The move marks a serious escalation in the SEC's campaign to rein in an industry that has long operated in a regulatory gray area.
Coinbase stock took a big hit on Tuesday, falling more than 12%, and Binance saw investors siphon nearly $800 million from its platform in 24 hours.
These cases set the stage for litigation that could take months, if not years, to resolve.
Meanwhile, many US investors/believers in digital assets are at a loss. The big question: Is there a safe place to trade cryptocurrencies?
The short answer is probably not. At least for now.
“A good rule of thumb is that all crypto exchanges commit crimes, and if they're lucky, they just take care of the crimes,” Bloomberg columnist Matt Levine wrote.
In other words, as far as Wall Street's top regulator, the SEC, is concerned, the regulator considers virtually all crypto tokens (with the exception of Bitcoin), and therefore almost all cryptocurrency exchanges operating in the United States. is illegal. This will be explained later. later) as securities. And without a license, you cannot operate a securities business.
Of course, Coinbase said the SEC had already approved its business model when regulators approved its 2021 listing, and the company has sought to work with regulators to ensure compliance with the law. argue (reasonably).
“There is no way to ‘come and register.’ We have tried many times.” tweeted Coinbase CEO Brian Armstrong said on Tuesday. “Instead of issuing a clear rulebook, the SEC is taking a regulatory-by-enforcement approach…so if we need to use the courts to get clarity, so be it.”
Lack of regulatory clarity is a common complaint among crypto companies, as the U.S. pushes the industry overseas and ultimately cedes power to foreign regulators with clearer guidelines. claims.
That may be true, but cryptocurrency skeptic and SEC chief executive Gary Gensler doesn't seem to care.
“Look, we don't need more digital currencies,” Gensler told CNBC on Tuesday. “We already have a digital currency. It’s called the US dollar. It’s called the euro, it’s called the yen. It’s all digital now. We already have digital investments. Masu.”
Gensler's message to investors: The SEC is here for you.
“Retail investors benefit from U.S. securities laws. Cryptocurrencies are no exception, and these platforms and intermediaries must comply,” he said.
The double whammy of a civil lawsuit by the SEC lays the groundwork for litigation and, ultimately, a judicial review that could force Congress to act.
“Our view remains that only Congress can end the policy chaos surrounding cryptocurrencies over the past year,” said TD Cowen analysts. “That’s why this lawsuit may not be a positive for Coinbase, but it should be a positive for the cryptocurrency industry. Regardless of what the judges decide, it will make cryptocurrencies the final rules of the road.” It should be close to .”
Meanwhile, Leena Agarwal, director of Georgetown University's Psaros Center for Financial Markets and Policy, said U.S. investors need to be very careful about where they trade cryptocurrencies. She added: “U.S. regulators are aggressively pursuing crypto companies, and I don't see this changing.”
Agarwal said Bitcoin and Ether futures traded on the Chicago Mercantile Exchange are safe because the exchange is a regulated entity. “There are also ETFs that track Bitcoin futures that are offered by traditional financial companies.”
Interestingly, Bitcoin, the world's first and most popular cryptocurrency, soared on Tuesday despite the regulatory crackdown. Part of the reason is that the SEC considers cryptocurrencies to be products that fall under the jurisdiction of the CFTC.
After falling 6% on Monday, Bitcoin rebounded on Tuesday, trading above $27,000 in the afternoon.
Ed Moya, senior market analyst at Oanda, wrote that many crypto investors seem to be abandoning so-called “altcoins” and sticking with relatively reliable OG cryptocurrencies.
Bottom line: “The SEC appears to be playing whack-a-mole with crypto exchanges,” Moya wrote. Cryptocurrency investors should therefore decide whether they can be confident that products on various exchanges will continue to be tradable.
That's not a sure thing. Again, crypto trading is a risky activity under the best of circumstances and always requires a stomach of iron.
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