Binance and Coinbase face SEC charges: Detailed analysis of market reaction and impact

Abstract:

The U.S. Securities and Exchange Commission (SEC) has filed a formal lawsuit against cryptocurrency exchanges Binance and Coinbase, triggering a series of chain reactions in the market, including massive sell-offs and the delisting of tokens involved in securities definition.

The charges against Binance are more serious, including fraud, cross-entity mixed assets, and counterparty transactions with customers;

The market reacted strongly to this, with the average price of the 18 tokens defined as “securities” by the SEC falling by 28.8%, compared to a 7.4% drop in BTC during the same period. However, even though it was first sued by the SEC, BNB’s market share has even slightly increased, showing its relative price resilience;

• Why did the crypto community react negatively to BlackRock’s “wind-facing” application for a Bitcoin ETF?
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The cryptocurrency tokens defined as securities in this case are mainly public chains, accounting for 13/18, followed by entertainment and metaverse tokens, accounting for 4/18, and the latter suffered a greater decline;

The report predicts possible future scenarios of the SEC lawsuit, including possible legal impact and market reactions, and discusses the progress of legislation in the cryptocurrency industry;

The report summarizes precedents of cryptocurrency cases, including illegal token issuance and unregistered investment management cases.

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The U.S. Securities and Exchange Commission (SEC) filed lawsuits against cryptocurrency exchanges Binance and Coinbase on June 5th and 6th, respectively, accusing 19 tokens of being securities, which triggered a sharp sell-off in the entire market.

The SEC’s Charges

The SEC accuses Coinbase of operating unregistered securities exchanges, brokers, and clearing agents, as well as unregistered cryptocurrency asset pledging and interest-bearing services. However, the charges against Binance are much different. In addition to being accused of operating unregistered securities exchanges, brokers, and clearing agents, the SEC also accused it of more activities similar to FTX: fraud, cross-entity mixed assets, and counterparty transactions with customers, which the SEC did not accuse Coinbase of.

The SEC has issued a warning to the financial market: most cryptocurrency assets are securities, and this position may impose strict regulatory requirements on cryptocurrency exchanges.

Since Gary Gensler was sworn in as SEC chairman in 2021, the industry has been predicting stricter regulation of cryptocurrencies, and when Gensler was a blockchain professor at MIT, he mentioned that many cryptocurrencies are likely securities, meaning they should be regulated by the SEC and subject to U.S. government jurisdiction.

The SEC has taken enforcement actions against some industrial companies and projects, such as Ripple Labs, LBRY, Kraken, Bittrex, etc. Now, it seems that the SEC may have practiced with small companies before taking action against the two largest exchanges.

Chain Reaction

These lawsuits and their subsequent impacts have triggered chain reactions in the industry. Binance.US announced the suspension of USD deposits and withdrawals in response to the SEC’s actions. Binance said that SEC challenges to its banking partners have caused interruptions in fiat currency deposits and withdrawals.

Well-known brokerage Robinhood has decided to delist cryptocurrency tokens that it classifies as unregistered securities. After June 27th, the platform will no longer support tokens such as Cardano (ADA), Polygon (MATIC), and Solana (SOL). It is said that before the SEC took action, it held tokens worth $583 million in MATIC, SOL, and ADA.

Crypto.com announced the closure of its institutional exchange, citing insufficient demand due to the US market landscape. This decision reflects challenges faced by cryptocurrency companies as institutional investors, including pension funds, mutual funds, and university endowment funds, become cautious in volatile market environments and regulatory scrutiny.

On June 16th, Binance was under investigation by French authorities for allegedly providing illegal digital asset services and engaging in serious money laundering. On the same day, Binance also announced its withdrawal from the Dutch market. Binance said it would stop providing services to users in the Netherlands because it could not be registered there.

Market Changes

Table 1: A brief introduction and price comparison of 18 tokens mentioned in the SEC lawsuit in June