The Securities and Exchange Commission, the US financial market regulator, is particularly wary of all aspects of the cryptocurrency world. And it doesn’t disarm this week by attacking two giants in the domain: Binance and Coinbase.
It is the fight-field of stock markets around the world on Tuesday as Coinbase’s action collapses. The cause? The SEC seems determined to end the crypto market
But what are these two platforms, and why are they under attack by the US administration?
The world’s largest exchange
Binance is simply the world’s first crypto exchange platform. The site, originally in Hong Kong, has moved its offices extensively as its market expands to more than 13 countries. After Malta and Tokyo, the exchange is now based in the Cayman Islands, although it claims not to have a headquarters.
But there is a country in which Binance was not supposed to operate at any rate: the United States. Since 2019, the company has been banned there because of non-compliance with US rules. In 2021, it will also be banned in the United Kingdom. A situation that could have left it there
US customers despite the ban
But in 2023, the SEC attacked Binance for its disregard for US regulations, which may seem paradoxical for a company that cannot operate in Uncle Sam’s country but is perfectly logical.
Indeed, against all odds, the platform continued to accept US customers, despite the ban, providing a solid basis for the SEC to allow itself to investigate.
An investigation that has been in place for several months now, but which finally seems to be taking place as the US authorities attack the exchange on the basis of several breaches of its rules
As many as 13 counts
The program of charges against Binance is 13 counts. The first is, of course, to have allowed some wealthy American customers to be able to operate on the exchange despite its ban on US territory, but the others are not insignificant.
For example, Binance would have confused the funds of its clients with those of the company in an unauthorized manner, which is already a crime in itself, before transferring them to Merit Peak Limited, a European company owned by Binance founder Changpeng Zhao.
And finally, the other charges against Changpeng Zhao are about knowingly lying to US regulators, as well as the secret manipulation of trading platforms.
Another Blockchain-related trading company would also be linked to the latter charge, as it would have been involved in the voluntary manipulation of the trading volume. It is called Sigma Chain, and it is therefore also concerned with these accusations
Coinbase attacked in the process
The SEC did not stop on such a good track, as it also revealed charges against Coinbase. Unlike Binance, this exchange is of American origin, and perfectly legal in the United States, with a headquarters located in San Francisco.
Much less sulfurous than Binance, Coinbase was thus in the open in the United States and did not seem to be too bad, despite some financial setbacks in the year 2022. And while Binance is the world’s largest platform, Coinbase could boast of being in the same place at the US level
Fraud in unregistered securities
The charges against Coinbase, however, are not so different from those on Binance, since these, too, are selling unregistered assets in the United States. But in a very different way.
Indeed, in the stock market, the activities of brokers, exchanges, and clearing agents are separate activities. In most cases, these are carried out by different bodies.
However, in the case of Coinbase, it seems that Coinbase has granted itself the right to carry out these three activities without ever registering for any of the three functions with the SCE, to which it simply preferred to present itself as a mere company.
For this reason, Coinbase was simply not allowed to sell the securities associated with these activities, in particular that of the broker. It is in this capacity that the exchange is now accused by the SEC
Scholarships in mess
As a result of these two accusations, which are jostling two days apart, stock markets have undergone profound changes. The two cryptocurrencies are indeed falling below.
While the price of Binance’s crypto is thus already slightly increased, it does not seem ready to recover its original level. The same is true of Coinbase, which is experiencing a less radical fall
Little or no reaction from the persons concerned
Both Binance and Coinbase are totally silent, or almost all. For example, Binance simply issued a statement of the most austere, saying it was to regret the SEC’s decision but to cooperate in the investigation.
The exchange also recalled that, since it does not theoretically operate in the United States, the impact of the attack is only limited. The tone is meant to be more accusing.
And as far as Coinbase is concerned, the company has simply not yet reacted to the accusations
What’s the future for Crypto?
What is certain is that attacks on the world’s largest exchange and US counterpart can only have a negative impact on the crypto market.
They largely echo the similar situation of the FTX exchange platform a year ago, but this time with a much larger scale. They are also part of a broader fund-raising movement, with a much more unstable Crypto market