US SEC Crypto Crackdown: Should The Industry Be Concerned After Binance and Coinbase Lawsuits?

The US Securities and Exchange Commission (SEC), which has filed charges against Binance and Coinbase, two of the biggest exchanges in the world, has shocked the cryptocurrency sector, which is already battling the difficulties of a crypto winter. The SEC has been hinting at its intentions regarding the offering of unregistered securities by cryptocurrency exchanges. It is believed that the regulator is attacking cryptocurrency with full force as a result of the simultaneous lawsuits filed against the biggest crypto operations.

To be more precise, Binance has been accused of breaking securities regulations since it enables US users to trade on its platform even though it is unclear whether cryptocurrencies qualify as securities. Charges against Coinbase include running a “unregulated securities exchange” in the US securities market.

Let’s go back in time to the beginning to discover how it all began. The exponential expansion of cryptocurrencies in recent years, which began around 2020, caught the attention of authorities all across the globe. Joe Biden, the former president of the United States, sought to highlight the dangers and difficulties associated with cryptocurrencies. This spurred the SEC to examine digital assets more closely, but instead of the laws that the ecosystem had hoped for, what happened next was that crypto was considered the same manner as conventional financial assets as a first step towards regulation.

The Howey test, which establishes whether an asset is a security or not, was thus applied to cryptocurrency, suggesting that earning gains from capital invested in common businesses qualifies cryptocurrency as a security in the US. The usefulness of cryptocurrency, its use, and the creation of goods based on blockchain were not taken into account while determining the judgments.

 

However, once the FTX crashed and the market suffered serious effects last year, the SEC’s stance on cryptocurrencies became more assertive. Prior to this, Ripple was one of the few significant participants involved in a legal dispute with the SEC and was being sued on charges that were similar. But as the bear market took hold, more and more flaws began to show themselves, placing the SEC and its counterparts in a precarious position. The work of the regulators was questioned in light of the failure of well-known initiatives like FTX, Grayscale, Voyager, Genesis, BlockFi, and notably Voyager. The finances of many users were impacted, and the effect spread throughout the TradFi ecosystem as well.

Since then, more stringent processes have been put in place to look into Crypto exchanges and the services they provide to US users. We could be in for a protracted legal struggle in the coming months since neither of the exchanges in issue wants to resolve the dispute anytime soon. While the lawsuit’s outcome may lead to more clarity about rules and categorization of digital assets, many centralised exchanges, including those named in it, may see a spike in money withdrawals and, if appropriate, a decline in the value of native tokens.

Brian Armstrong, CEO of Coinbase, said: “We tried, repeatedly, but there is no mechanism to ‘come in and register. America is being harmed by the SEC’s regulation-by-enforcement strategy, which it should have published a clear set of rules for. Therefore, if using the legal system to get clarification is necessary, so be it.

Another potential scenario to look out for in light of these occurrences is how the SEC views stablecoins. It has recently become a well-liked investment asset. Tether, the biggest stablecoin issuer, has been gaining importance via international alliances and partnerships. The stakeholders’ memories of the Terra stablecoin’s demise, however, are still recent. Gary Gensler, the head of the SEC, highlighted concerns regarding Tether’s reserves and its capacity to provide sufficient liquidity against its holdings in 2022. Tether and other stablecoins may find themselves in a similar bind as we see with the exchanges right now.

In the crypto world, Bitcoin, the original cryptocurrency that is decentralized, safe, and defying claims that it is a security token, remains the sole source of confidence and ray of hope. The BRC 20 token standard has recently increased the use of Bitcoin, which might further increase its usefulness and spur development despite all the uncertainty in the market.

The crypto sector has faced many conflicts and obstacles throughout the course of its existence, often contending with legal and regulatory issues. It is important to note, however, that despite these difficulties, Crypto has continually shown resiliency and has come out on top. The sector has developed continually, adjusting to shifting environments and laws and innovating to handle issues and enhance security.

The latest legal actions against Coinbase and Binance may cause short-term instability, but the underlying technology and the broad use of cryptocurrencies point to a bright future. The crypto sector has shown time and time again that it can overcome difficulties and become more strong, laying the path for a developing and long-lasting ecosystem in the years to ahead.