The U.S. Securities and Exchange Commission (SEC) filed lawsuits last week against two of the world’s biggest cryptocurrency exchanges, Binance and Coinbase, deepening tensions between government regulators and the crypto industry. The SEC claims that both companies violated the law by operating as exchanges without registering their businesses with the SEC. Binance is also accused of diverting customer funds to a separate business, among other charges. In response, the SEC requested a federal judge to freeze the assets of Binance’s U.S. platform.
The lawsuits are the latest in a continued struggle between those in government who refer to the crypto industry as the “Wild West”, and those who seek to legitimize cryptocurrency as a currency of the future. The SEC’s recent actions signal that they are determined to ensure crypto has no place in the traditional financial system. SEC Chair Gary Gensler stated that “We don’t need more digital currency … we already have digital currency – it’s called the U.S. dollar.”
The outcome of the legal battle could either greatly diminish the growth of the crypto industry or, alternatively, restrict the scope of the SEC’s regulatory authority. Federica Pantana, an attorney at Davidoff Hutcher & Citron in New York who handles SEC cases, says that crypto firms must take the view that crypto assets are securities and platforms that exchange these assets must accept that. Companies that trade in crypto must decide if it makes business sense to register with the SEC or abandon their businesses altogether. This will determine the future landscape of the industry, and could put some companies out of business.
The SEC’s increased scrutiny of the crypto industry has been acknowledged by Treasury Secretary Janet Yellen, who stated her “very supportive” of the SEC using the tools it has to protect consumers and investors. Several bills were introduced last year by Democrats and Republicans, which would put crypto under the authority of the Commodity Futures Trading Commission and make other products, including stable coins, more legitimate. Yellen said that she sees “some holes in the system where additional regulation I think would be appropriate and we would like to work with Congress to see additional legislation passed.”
Crypto lobbyists now believe that laws are urgently needed to stop the SEC from moving forward with its lawsuits. The most viable piece of legislation is in the House Financial Services Committee, spearheaded by Rep. Patrick McHenry, R-N.C., chairman of the panel, and co-authored by Glenn Thompson, R-Penn., chairman of the House Committee on Agriculture. It seeks to delineate agencies’ jurisdiction over certain digital assets and “strike the appropriate balance between consumer protection and encouraging responsible innovation.”
Kristin Smith, CEO of the Blockchain Association, said “Congress has no choice but to thoughtfully move forward with legislation to clear up this confusion.” Perianne Boring, founder of the Chamber of Digital Commerce, another top crypto lobbyist, believes the SEC’s actions are “arbitrary and capricious” and “politically motivated, opening up legal risk against SEC.” She says Gensler’s comments on the merits of cryptocurrency go outside the scope of his role as SEC chair.
Representatives from the SEC and White House did not respond to Associated Press requests for comment.
