The US Securities and Exchange Commission (SEC) lawsuits against Coinbase and Binance have sounded the bell for other cryptocurrency exchanges in the US, which may suffer the same fate.
On Tuesday, the SEC accused Coinbase of allowing the trading of 12 crypto assets, which it claims are securities and should have been declared as such, while a day earlier it had accused Binance, the world’s largest crypto exchange, of trading 12 similar assets.
These lawsuits have expanded the number of cryptocurrencies that the SEC explicitly considers to be securities, raising questions about other exchanges – such as Kraken, Gemini, Crypto.com and OKCoin – that have also allowed US investors to trade in them. These exchanges are also at risk of being targeted by the SEC, industry executives note.
The SEC considers most tokens to be securities
“All U.S. exchanges should now be on notice that they may be subject to enforcement action if they allow or have allowed trading in these tokens,” said the head of legal services at Fireblocks.
Although crypto companies have been operating in a gray zone reporting with the regulatory framework, the SEC under its current chairman, Gary Gensler, has consistently upheld its jurisdiction over the industry, noting that most tokens meet the definition of a security and should be subject to the corresponding transparency rules.
Solana and Cardano
The SEC has proceeded with over 130 lawsuits and settlements to date, and in many of them has named specific cryptocurrencies as securities.
With the lawsuits against Coinbase and Binance the list of cryptos designated as securities includes some that are the subject of large transactions, such as Solana, Cardano and Polygon.
“We wouldn’t be surprised to see more lawsuits from US regulators and possibly the Department of Justice in the coming weeks,” said Scott Freeman, co-founder of JST Digital.
Both Coinbase and Binance deny the SEC’s accusations and have stressed that they will vigorously defend their positions in court.
They, like other exchanges, are challenging the SEC’s jurisdiction, noting that many tokens are more like commodities and have asked regulators to formulate clear rules rather than invoking their jurisdiction through acts of oppression.
Long-term litigation
“We don’t negotiate securities. For every asset in which trades are made, our teams do thorough risk and security assessments that include a detailed legal compliance process,” said a Kraken spokesperson.
The lawsuits will be heard in court years later. But according to crypto company executives, regardless of whether the SEC wins or loses, it sends a strong message to the industry that it will not back down.
But while large crypto companies have been able to do battle with the SEC, smaller companies in the industry have gone bankrupt following the SEC’s actions, such as exchange Beaxy.
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