NZZ: The US Offensive on the Crypto-Industry

The SEC brought serious charges against the crypto exchange Binance and its founder Changpeng Zhao. The powerful US service is also targeting Coinbase and several tokens

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Illustration, Photo: Shutterstock
Illustration, Photo: Shutterstock
Disclaimer: The translations are mostly done through AI translator and might not be 100% accurate.

The US Securities and Exchange Commission's (SEC) lawsuit against Binance on Monday was not unexpected. But the lawsuit against Coinbase just a day later. Crypto markets reacted with losses to an apparently concentrated action by the powerful US SEC against the world's largest crypto exchange and its founder, Changpeng Zhao, stage name "CZ". Cryptocurrency Bitcoin and many other coins lost significantly in value on Tuesday.

The new criminal proceedings against the popular crypto exchanges Binance and Coinbase send a strong signal and show that the US authorities want to greatly increase the regulatory pressure on the crypto industry. There is a lot of nervousness in the crypto-scene about the vigorous action of the SEC, because the SEC accusations are more than serious. The head of this all-powerful US service, Gary Gensler, accused Binance and Zhao on Twitter of gross deception, conflicts of interest, lack of transparency and deliberate circumvention and violation of US laws.

The lawsuit against Coinbase is fewer and more moderately worded, but no less problematic. This US-based crypto exchange has been accused of operating an unregistered securities trading venue. Unlike the case against Binance, Coinbase CEO Brian Armstrong should not be personally prosecuted.

The action of the US SEC is ruthless and has a wide impact, so the question arises: are primarily only Binance and Coinbase in trouble, or do the US authorities want to massacre the entire crypto industry?

Why is the SEC targeting Binance and Coinbase?

Binance and Coinbase are among the most important names in the crypto scene. With a daily trading volume of $11,5 billion, Binance is also the largest crypto exchange in the world. Since the demise of US competitor FTKS in the fall of 2022 – which choked Binance with massive withdrawals – the crypto exchange has been under pressure from US politicians and targeted by US authorities.

On the defensive after the collapse of FTKS, Zhao staged himself as a spokesperson for the crypto-world. He calls for more transparency and safety in the industry worldwide and through the media. Which is the exact opposite of all his long-standing beliefs and actions. Because until now, Binance has skillfully nurtured an Underdogs image: a company that doesn't care about government regulations and US laws.

Of course, nothing concrete happened even after Zhao's announcements. To this day, Binance does not have an official headquarters, the financial circumstances of the platform and its related companies are unclear, and there is no proper audit of the companies. In March, the Commodity Futures Trading Commission sued Binance for running an "illegal" exchange and a "false Compliance-Program."

Coinbase is currently a particularly popular trading platform for private investors in the USA, which is listed on the stock exchange and must meet the appropriate requirements for data transparency. More than 8 million customers use the platform every month.

According to data from the crypto information platform Nansen, Binance already lost a significant amount of value on Monday. Coinbase shares lost 20% on Tuesday.

What exactly is the US accusing Binance and Coinbase of?

The SEC accuses Binance, its US subsidiary “Binance.US” and Zhang of offering unregistered securities in the form of Binance-Token and investment services to customers in the United States, in violation of US securities regulations. Binance has also been accused of commingling client funds and artificially inflating the trading volume of its US branch. And Zhang that he "directed" 62,5 million dollars to himself from just one user account.

The indictment alleges that large buyers gained access to billions of dollars in assets of smaller buyers. And that Binance gave US individuals access to the trading platform, despite swearing it didn't. It is also alleged that Binance had access to the Wallets and Assets of its subsidiary in the United States. And they highlight the activities of "Over the counter"-Desks, which had only one client: Alameda Research, FTKS trading house.

The SEC accused Coinbase of simultaneously operating as an unregistered broker, an illegal exchange, and an illegal clearing house. According to SEC chief Gary Gensler, these are separate activities that Coinbase illegally combined: Coinbase was simultaneously soliciting customers, processing orders, approving offers and acting as an intermediary. Coinbase Staking services are also considered illegal because they were not registered with the SEC.

How does Binance defend itself?

Binance has denied all allegations in a tweet. The procedure has no basis. The American subsidiary of Binance has been seeking dialogue with the SEC "in good faith" for the past two and a half years to develop a practical regulatory framework for digital assets.

Binance remains open to compromise, but at the same time sees the measures against Binance and other platforms such as Coinbase, Gemini or Kraken as an attempt by the US SEC to "uproot" the crypto-industry. The steps taken by the SEC have had the opposite effect of what they were intended to do: instead of protecting investors, they have harmed them.

What sanctions does Binance have to count on?

A lawsuit brought by the SEC is, under US law, part of a civil proceeding. No specific sanction or fine is mentioned in the 136-page lawsuit. According to the SEC, the goal of the action is to prevent Binance and its affiliates from continuing to violate US federal laws. Binance must return its ill-gotten gains and cease unregistered trading activities.

In addition, penalties under civil law and refunds to investors follow. It is that an immediate, complete cessation of Binance activity is not required. However, if the court finds Binance guilty on the essential counts of the indictment, it is difficult to imagine any business continuing in its current form, and Binance's future would therefore be uncertain. In this regard, it is astonishing that the outflow of funds has so far remained minimal.

What does the procedure mean for the crypto industry?

The outcome of the SEC proceedings is open. However, the steps taken against the two most important figures of the crypto industry clearly show that the US authorities are serious about regulating and legalizing the entire crypto market. However, it is not just about the future of Binance and Coinbase. Crypto figures like Anthony Scaramucci see the SEC's actions as a targeted attack on the future of digital assets in the US.

In addition to possible operational restrictions and loss of confidence in Binance and Coinbase, secondary effects could also shake up the crypto-industry. In its criminal charges, the SEC not only classified Binance-Tokens BNB and BUSD as securities, but also several other coins and their corresponding protocols such as Solana, Cardano, Polygon, Sandbox, Voyager, Algorand or Decentraland. Accordingly, they and their operating organizations would also have to be subject to US securities regulation. Other exchanges offering these tokens for trading could also be considered securities houses and would have to comply with the relevant regulatory requirements.

This does not bode well for numerous not very professional platforms either. Actions against Binance and Coinbase could be just the beginning of a broad US offensive against the crypto industry. In such an environment, the long crypto winter could soon set in again, after crypto markets have been red hot with gains in recent months.

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Translation: Mirko Vuletić

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