Update (June 7, 12:05 PM UTC): This article has been updated to add comments from BitMEX CEO Stephan Lutz
Cryptocurrency professionals have responded to recent actions by the United States Securities and Exchange Commission (SEC) against two of the largest cryptocurrency exchanges, Binance and Coinbase.
On June 5, the SEC filed a lawsuit against Binance for allegedly offering unregistered securities. Just a day after filing the lawsuit against Binance, the commission also went against Coinbase on similar grounds, alleging that popular cryptocurrencies offered by the exchange, such as Solana (SUN), Polygon (MATIC) and The Sandbox (sand), can be considered values.
Today we charged Binance Holdings Ltd. (Binance); US-based affiliate, BAM Trading Services Inc., which, together with Binance, operates https://t.co/swcxioZKVP; and their founder, Changpeng Zhao, with a variety of securities law violations. pic.twitter.com/IWTb7Et86H
— US Securities and Exchange Commission (@SECGov) June 5, 2023
Today we charge Binance Holdings Ltd. (Binance); US-based affiliate, BAM Trading Services Inc., which, along with Binance, operates and its founder, Changpeng Zhao, with a variety of securities law violations.
Cointelegraph reached out to market players working in the space to learn their responses to recent SEC actions.. From sharing the belief that it will drive US cryptocurrency companies away to simply calling the SEC’s actions lazy, industry players shared their thoughts on the latest developments.
An “unacceptable” approach to regulation
According to Kristin Smith, CEO of the Blockchain Association, while the SEC’s actions are expected, they are still unacceptable. Smith explained that:
“The SEC doesn’t make the law. Indeed, this approach to regulation is unacceptable, but it is what we expect from the SEC and its anti-crypto stance.”
The executive stressed that as industry and US Congress work to develop effective regulation, SEC “continues to distract from substantive policy efforts”. The executive believes that by listing assets in this way, the SEC is trying to circumvent formal rulemaking processes and deny public participation.
For his part, Paolo Ardoino, CTO of stablecoin issuer Tether, believes companies’ complaints against the SEC should be heard. According to Ardoino, The uncertainty of US rules and guidance is becoming a common theme, even among the country’s biggest cryptocurrency supporters.
Turbos Finance CEO Ted Shao also echoed Smith’s sentiment. Shao says that this is “not the direction that Web3 developers want to see.” The executive believes that the SEC has shown that it is against the entire Web3 space, as they are also going after the best projects, not just centralized exchanges.
Kick out crypto miners and undermine consumer confidence
In addition to the SEC’s actions being unacceptable, other professionals working in the space believe the effects of this recent move include pushing crypto players into more crypto-friendly jurisdictions and weakening consumer confidence in cryptocurrencies within USA.
Insider Intelligence crypto analyst Will Paige said the recent lawsuits highlight the SEC’s intent to police the space through law enforcement in the absence of a regulatory framework. According to Paige, this could bring down the “already weak consumer confidence in cryptocurrencies” in the country.
Ben Caselin, chief strategist at cryptocurrency exchange MaskEX, believes that while this is a case against Binance, it may have implications for other players in the United States. The former AAX executive explained that this can “open up more opportunities for other jurisdictions, such as Hong Kong, Dubai or even El Salvador, to drive innovation and attract capital and talent.”
Oscar Franklin Tan, legal director of the protocol of non-fungible tokens Enjin, agree with this sentiment. According to Tan, the world will not wait for the United States to decide on cryptocurrencies. Tan explained:
“The SEC’s actions only drive talent and innovation outside the US to countries with clearer rules that support responsible builders. Singapore, in 2020, stated that it does not follow the US Howey test. Japan has a clear self-regulatory framework for exchanges.”
The executive believes that “progressive countries” will reap the benefits, especially as the explosions of artificial intelligence and extended reality highlight the need for blockchain and true digital ownership.
Doubts about the impartiality and motivations of the SEC
While some were expressing their beliefs about the possible effects of the SEC’s lawsuit against Binance and Coinbase, other cryptocurrency professionals were discussing the motivation and fairness of the SEC’s move.
According to David Schwed, COO of blockchain security firm Halborn, the SEC’s mandate is to ensure investor safeguards. Schwed believes that this can be done through clear regulations, not through coercive measures. The executive added that SEC Chairman Gary Gensler’s motivations may be skewed. “It seems to me that his personal ambitions and the need to validate his position have now superseded his primary mandate,” he explained.
Alex Strześniewski, founder of the protocol decentralized finance AngelBlock called the SEC’s action “lazy.” The executive believes that he is not promoting adequate regulation. He explained:
“It’s like a school teacher who scolds you for giving the wrong answers but doesn’t give any explanation beyond that. I also don’t think the SEC, in fact, has jurisdiction over everything they claim.”
Meanwhile, Tim Shan, director of operations for the decentralized exchange Dexalot expressed mixed feelings about the lawsuits, saying the SEC’s actions are unfair to the community.
“They have provided very little clarity or guidance to the crypto community. They are regulating through the courts, which is really unfair and not the right way to regulate/govern”said.
Impact on stock prices of cryptocurrencies and altcoins
Stephan Lutz, CEO of cryptocurrency trading platform BitMEX, shared his thoughts on the potential market effects of the SEC’s crackdown on exchanges. Short term, Lutz said there would be downward pressure on crypto stock prices, altcoins, and valuations of US-based crypto asset startups.. Lutz explained that:
“Investors are likely to hold funds in cryptocurrency but dump Bitcoin because they are unlikely to be considered a stablecoin or security due to their correlation to fiat.”
In the medium to long term, Lutz believes that exchanges will be prudent in dealing with US-based clients and giving access to what the SEC considers securities. The executive also expressed his frustration that regulators are “taking the question of the definition of values to the court once again” instead of offering clearer guidelines.
BitMEX has been in trouble with US regulators. In 2021, the trading platform agreed to pay up to $100 million to settle a case with the Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN). In 2022, a New York court ordered the BitMEX founders to pay $30 million in civil penalties.
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