SEC sues Coinbase: What's prompting the crackdown on crypto exchanges
What's the story
The Securities and Exchange Commission (SEC) is on a crypto crusade. A day after it sued Binance, the most powerful force in the cryptocurrency world, the regulator has decided to go after Binance's rival Coinbase. SEC's crackdown on two of the world's top crypto exchanges has put the industry on notice. Let's see what's behind SEC's actions.
Context
Why does this story matter?
Coinbase has marketed itself as the most respected crypto exchange for years. Therefore, SEC's action might come as a surprise to many. The regulator, however, is not holding back. It is hellbent on making crypto companies follow strict US security laws. By suing Binance and Coinbase, it has shown its intent to not leave any page unturned.
Coinbase
SEC accused Coinbase of operating as an unregistered exchange
The SEC filed a lawsuit against Coinbase in a New York federal court alleging the company operated as an unregistered "securities exchange, broker, and clearing agency." It also alleges Coinbase failed to register the sale and offer of its staking program. In its complaint, the regulator accused Coinbase of violating provisions of the Securities Exchanges Act of 1934 and the Securities Act of 1933.
Commingling
Coinbase's model is built on non-compliance: SEC chairman
SEC Chairman Gary Gensler said Coinbase "commingled" and "unlawfully" offered the functions of exchange, broker, and clearing agency. "The whole business model is built on a noncompliance with the US securities laws and we're asking them to come into compliance," he told CNBC. Gensler labeled the crypto industry as the "wild west." SEC's complaint said Coinbase has been flouting rules since 2019.
Binance
Binance has also been accused of 'commingling' assets
Meanwhile, the SEC filed 13 charges against Binance and its founder Changpeng Zhao. The world's leading crypto exchange is also accused of "commingling customers' assets." The regulator alleged Binance allowed high-value US customers to use its unregulated international platform (Binance.com). According to the SEC, Binance's US arm isn't independent. It accused Zhao and Binance of operating Binance.US from behind the scenes.
Reason
FTX's collapse has prompted SEC to start the crackdown
SEC's crackdown on crypto trading platforms started after the fall of FTX and its founder Sam Bankman-Fried. Bankman-Fried was known for lobbying for fewer regulations for the crypto industry. Now, he is charged with securities fraud, money laundering, and other offenses. FTX's collapse and the subsequent revelations about its illegal activities put a lot of focus on how the crypto industry worked.
What's next
SEC's action may not have any short-term impact
SEC's crackdown is not good news for the crypto industry which has been showing signs of recovery after the tumultuous 2022. The regulator's two consecutive suits signal the beginning of a long-running campaign. Analysts, however, think SEC's actions won't have any impact on investors in the near term. However, if SEC targets specific tokens, things might be different.