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At the beginning of the week, SEC Chairman Gary Gensler surprised the crypto industry by filing a lawsuit against Binance, the world’s largest crypto exchange. The lawsuit revealed Binance’s attempts to evade U.S. regulations.
The next day, Gensler filed another complaint against Coinbase, aiming to portray the industry as chaotic. In an interview, Gensler questioned the necessity of cryptocurrencies, stating that the U.S. dollar sufficed as a digital currency.
The SEC’s complaints against Binance and Coinbase differ significantly. The Binance case accuses the company of deceiving regulators and engaging in wash trading. The SEC alleges that Binance mingled customer funds with its own accounts.
The SEC filed the complaint in Washington, D.C., potentially indicating criminal charges against Binance. The complaint against Coinbase, filed in Manhattan, focuses on the company’s sale of unregistered securities and its unauthorized activities as a broker, exchange, and clearinghouse.
While the SEC’s maneuvers may not influence the federal judge overseeing the case, the allegations against Coinbase could impact its business model if proven true. If the SEC wins, Coinbase may be limited to selling only Bitcoin and Ethereum, which could render U.S. crypto companies nonviable.
Crypto lawyer Preston Byrne predicts a 33% chance of Coinbase ceasing operations in the U.S. within five years. He believes Coinbase will expand internationally if setbacks occur in the SEC case.
Industry Insiders Express Optimism Amid Regulatory Uncertainty in Crypto Industry
Industry insiders surprisingly expressed optimism about the chances of Coinbase and other crypto firms prevailing against Gensler. However, it remains unclear whether this sentiment was genuine or strategic in nature.
A prominent venture capital firm executive, who wished to remain anonymous, revealed that they had sent reassuring letters to their limited partners, stating that the SEC’s actions did not pose a long-term threat to the crypto industry.
Furthermore, she indicated that legal professionals within the venture capital firm and those in the crypto industry, many of whom possess government backgrounds, hold the view that Gensler has exceeded the limits of his authority despite not being a lawyer himself.
The executive emphasized that the SEC does not dictate the law and that its enforcement campaign relies on interpretations of existing securities regulations that are rarely applied in federal courts.
Should the SEC experience a loss in any of these cases, it may result in the agency adopting a more lenient stance towards crypto enforcement, potentially resulting in dropped charges or settlements with Coinbase. However, the current market sentiment regarding Coinbase’s prospects appears pessimistic, reflected in a 15% decline in its shares since the beginning of the week.
Crypto Industry Faces Regulatory Uncertainty Amidst SEC Lawsuits and Potential Legal Actions
The recent lawsuits filed by the SEC against Binance and Coinbase have attracted significant attention due to the prominence of these two industry giants. However, it is important to note that the SEC is actively pursuing numerous other cases against various crypto firms.
In fact, insiders in the crypto industry interviewed by Fortune anticipate the possibility of more legal actions on the horizon, including potential criminal charges from the Justice Department.
Usually, when several federal agencies focus on a company, the charges they bring often align. However, this pattern does not apply to Binance. The Commodity Futures Trading Commission, a smaller agency, had filed a lawsuit against Binance in federal court around two months prior to the SEC’s complaint. This raises concerns about the staggered sequence of the charges.
An industry insider confirms that the agencies are coordinating their actions. The reason for the Justice Department’s delay in filing charges against Binance is believed to be either ongoing settlement talks or the complexity of the case, as suggested by multiple sources.
Gensler’s Strong Stance Against Crypto is Nothing More Than a Distraction – Critics
Also, there is suspicion in Washington regarding Gensler’s motives. Critics suspect that his recent strict stance against the crypto industry serves as a distraction from his failure to detect significant fraud in projects such as Terra and FTX, as well as his connections to the disgraced founder of FTX, Sam Bankman-Fried.
Certain industry insiders, including a venture capital executive, think that political circumstances might turn against Gensler in the near future. This could create an opportunity for legislation that removes the SEC’s control over specific parts of the crypto industry.
Regardless of Gensler’s motivations, it appears that he currently holds a position of power over the crypto industry. While Coinbase and other crypto companies are expected to survive under his tenure in one way or another, they may need to navigate their future outside the jurisdiction of the United States.
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