Experts discuss future of Binance and Coinbase.

After years of criticizing cryptocurrency, Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC), has taken action against Binance and Coinbase, two of the largest players in the industry. Gensler has previously suggested that proof-of-stake tokens are securities, claimed that all crypto exchanges are illegal, and argued that all but one cryptocurrency are “investment contracts” subject to the Howey Test, a standard for determining whether financial assets are securities. Facing these regulatory hurdles, Binance and Coinbase are likely to fight back against the SEC. If the cases go to the U.S. Supreme Court, the outcome could have far-reaching implications for the crypto industry as a whole. Meanwhile, the SEC’s actions have shed new light on its approach to crypto and why it has been so aggressive. Legal experts and crypto observers have offered a range of opinions on the likely outcomes of the cases and what they could mean for the future of the industry. Some are optimistic that Coinbase, which has tried to comply with SEC rules, may fare better than Binance, which has admitted to violating them. However, others are concerned that the SEC has not provided a clear explanation of its regulatory goals or how it plans to achieve them, which could undermine its credibility in the long run.

Mike Selig, attorney: The recent SEC lawsuits against crypto businesses may not necessarily be bad for the crypto industry. In fact, it may encourage foreign jurisdictions to adopt new crypto laws and regulations and U.S. lawmakers to debate comprehensive crypto market legislation. The political pressure to pass sensible crypto legislation becomes stronger every time the SEC sues another crypto business, especially if that business has been vocal about its attempts to comply with applicable laws and regulations. These lawsuits may encourage businesses seeking to comply with clearly applicable rules to leave the U.S. since foreign jurisdictions welcome them with open arms and a fresh set of laws and regulations. However, these lawsuits can also catalyze Congress to recognize that the SEC’s approach to regulation by enforcement is not working and comprehensive legislation is needed – or else the industry will flee to more accommodating jurisdictions.

Kristin Smith, Blockchain Association CEO: The recent SEC lawsuits against crypto businesses show that Congress must act urgently to bring responsible regulation to the crypto industry. The introduction of the Digital Asset Market Structure discussion draft by Rep. Patrick McHenry and Rep. Glenn Thompson is a step forward in the process toward effective regulation. It’s critical that the United States remains competitive at a time when countries around the world are taking action to bring responsible regulation to crypto.

In the short-term, do you expect Binance or Coinbase will change their approach to business?

Smith: The SEC’s enforcement action is just an opinion of the regulator, and until and unless the SEC prevails, it will likely be business as usual for Binance and Coinbase.

See also: Crypto Industry Is ‘Absolutely’ at War Against Gensler and Warren, Blockchain Association CEO Smith Says

Did the SEC’s suits against Binance and Coinbase reveal anything new about how the agency has been thinking about crypto?

Frye: The lawsuits illustrate what the SEC has been thinking about crypto for a long time. “Is it a security?” just isn’t an ontological question. It’s a security if the SEC wants to regulate it. So the real question is, what does the SEC want to regulate, why does it want to regulate those things, how can companies comply with the SEC’s regulatory objectives, and does any of it make any sense.

Selig: The SEC has been building legal theories regarding the security status of crypto assets and the proper registration categories for various crypto asset intermediaries for many years. The Coinbase and Binance lawsuits are the culmination of everything that came before. Neither case provides a significant amount of new information about how the SEC is thinking about crypto, but these are the complaints to read if you want to understand the agency’s views on crypto.

There are a few novel aspects to these complaints, however. With Coinbase, the SEC asserts that offering unhosted digital wallet software is broker-dealer activity because the wallet can be used to buy and sell alleged securities via third-party decentralized applications and the software developer takes a fee. In Binance, the SEC asserts that BUSD, a U.S. dollar stablecoin, is a security under novel theories. And in both complaints, the SEC argues that many crypto assets are securities that it has not previously deemed to be securities.

Thinking long term: What would crypto look like if the SEC wins, and Coinbase/Binance lose in the Supreme Court?

Frye: It depends on what the SEC wants to achieve. If it wants to destroy crypto, it probably can, if Congress lets it. Or at least, it could regulate crypto back to its late 2000s stage. But I don’t think it will happen. The SEC recognizes that it’s in the business of regulating markets and will eventually realize it has to take its regulatory role more seriously.

The author expresses disappointment with the SEC’s lack of coherent regulations for crypto assets and believes that the regulators should understand the markets they regulate and explain the rationale for their decisions. They predict that the future of crypto regulation in the US will be determined by Congress rather than the courts, and that if the SEC wins their lawsuits against Coinbase, Binance, Ripple and others, legislation will be established to create a regulatory market structure for crypto assets. The author also advises companies associated with the crypto assets named in the lawsuits to consider legal counsel. They believe that the current situation is unlikely to result in laws or regulations that would outlaw or subject cryptocurrencies to prohibitive requirements, and that the US will eventually regulate crypto assets as a validated asset class. The article concludes by asking if there is anything missing from the public discourse regarding crypto law.

Matt Stoller, antitrust activist: It appears that while the courts or Congress could make random decisions, the hype surrounding cryptocurrency has shifted to AI, which – despite its considerable hype – is a helpful technology. Therefore, the only question for cryptocurrency enthusiasts is whether they can provide a practical use case beyond money laundering and speculative activities.

What message do these cases send to other cryptocurrency exchanges? If you were a U.S. cryptocurrency exchange, would you be concerned?

Frye: Yes. The SEC is making it clear that it is taking action, but it is not achieving what the SEC wants. That’s a problem.

Selig: The SEC Enforcement Division’s message is clear: “We generally agree with SEC Chair Gensler’s view that most crypto assets are securities.” This is evidenced by the fact that the agency has now asserted that the majority of the top-ten crypto assets by market capitalization are securities, notably excluding bitcoin and ether.

See also: Coinbase Violated Securities Laws With Staking Program, Multiple U.S. States Allege

Nevertheless, the law is not settled and will be litigated in numerous lawsuits, including the Coinbase and Binance cases. The agency is spending a ton of resources to litigate with Coinbase and Binance. I would be surprised if we see many more crypto asset exchange-related cases brought by the SEC in the near term. Crypto asset exchanges must continue to evaluate whether each crypto asset is a security based on the unique facts and circumstances associated with each crypto asset.

There are several accusations made about Binance that would be damning if true, including accusations of wash trading and practices that would put customers at risk (some reminiscent of FTX). Is there a cause for concern about using the exchange going forward?

Frye: I have no idea, but maybe yes?

Is there an SEC Chair that would be worse for crypto than Gary Gensler? (I.e. what would be even more damaging for crypto than these two cases?)

Frye: Everyone in the crypto space complains about Gary Gensler. I am also critical of his approach to regulation. But what if the head of the SEC was Lina Khan [head of the Federal Trade Commission]. Or more realistically, what if Lina Khan decided the FTC ought to regulate crypto offerings. Good luck, you’ll be begging for Gary.

See also: Gary Gensler’s Evolving Position on Crypto – in Quotes

Smith: No, unfortunately, it’s clear Chair Gensler has a flagrant disregard for his agency’s own mission to protect investors. In this week alone, the SEC indirectly called some $120 billion worth of crypto assets securities. How does attempting to eliminate a market for these tokens protect investors?

Is it possible that the lawsuit will lead to either Binance or Coinbase, or both, shutting down in the U.S.?

Frye: Yes. I think it’s a very real possibility for Binance, based on the complaint, but very unlikely for Coinbase, which has done everything it can to comply with SEC rules and expectations, even when the SEC has misbehaved.

What did you make of Gary Gensler’s statement about the world not needing digital currencies because the dollar, euro and yen are all digital? Why does Gensler make normative claims about the industry, rather than focusing on his actual mandate?

Smith: Gensler appears to now be showing all his cards: he doesn’t think digital currencies should exist in the United States. He clearly understands the technology and has been open to exploring its potential in the past. He also understands the business of publicly traded companies like Coinbase, what products and services the SEC has already approved, and their obligations to financial disclosures. So without additional information, observers are left wondering what Chair Gensler’s motives are.

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