Harsh Realization or Necessary Clarity?

The cryptocurrency industry has been under huge pressure since the price of Bitcoin plunged from its all-time high of $69,000 in late 2021. 

A string of alleged frauds, financial contagions, and security breaches, along with the collapse of some high-profile trading and lending platforms, has led to the loss of around $2 trillion in value across the digital asset market.

More recently, the industry has also been facing regulatory pressure from the US Securities and Exchange Commission (SEC) amid increased calls for regulatory clarity in the sector. 

Binance and Coinbase, the world’s two largest crypto trading platforms, have been hit with lawsuits by the SEC accusing them of running unregistered securities exchanges and brokerages. 

The SEC alleges that Binance and Coinbase are operating without proper registration – violating federal securities law. 

“The SEC is now playing whack-a-mole with crypto exchanges,” Ed Moya, senior market analyst at Oanda Corp, a currency trading platform, told Bloomberg in a recent interview. 

In the complaint, the SEC accused Binance and Zhao of mishandling customer funds, misleading investors and regulators, and breaking securities rules. 

The commission also accused Binance of encouraging US customers to use VPNs to hide their location and access the main exchange. 

Coinbase, which has always claimed to comply with US laws, has also faced SEC scrutiny. 

The SEC has accused Coinbase of illegally running a range of financial services, including trading securities and failing to register as a securities exchange.

SEC Crackdown Could Help Bring Regulatory Clarity to Crypto

Some view the SEC crackdown as a necessary step towards bringing clarity to the industry, which has been plagued by a lack of regulation for years. 

In an interview last week, Coinbase’s chief legal officer Paul Grewal said the lawsuit would force the SEC to define a regulatory framework for digital assets. 

“Coinbase has been operating in the dark, largely, because the SEC has refused to tell us until this morning exactly what products and services give it concern,” he said. 

“As things currently stand today, not only Coinbase but no operating exchange or other intermediary can register with the SEC in a way that would allow it to list and trade registered digital asset securities.”

However, the ongoing lawsuits and regulatory public turmoil may dry up the flow of venture capital into the industry, leading to the collapse of many crypto-focused projects.

All in all, the SEC crackdowns raise questions about the crypto industry as a whole and whether it is a necessary step for getting clarity on regulatory frameworks. 

Crypto Firms Set Sight on Other Markets Amid SEC Scrutiny

Recent crackdowns by the SEC have forced crypto companies to explore other markets such as the UK and Brazil, where regulations are clearer.

Coinbase is already expanding its global virtual currency footprint aggressively with operations in Germany, Ireland, Italy, and the Netherlands. 

The company is also considering a potential move to the UK and Dubai for a friendlier regulatory environment. 

Binance is doing what it can to be regulated in the UK despite a ban on the company by the UK regulator last year. 

The industry hopes to find fresh impetus in countries like Brazil, where they can popularize “play to earn” in favelas by incentivizing young people to engage in learning and educational opportunities, according to Nana Murugesan, vice president for international and business development at Coinbase, told Bloomberg. 

“We’re trying to be creative now,” Murugesan added. “especially in the current environment, this resource-constrained environment.”