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SEC sues Binance and Coinbase, rocking the cryptomarket — why is this important, and what could it lead to?

Andrew Zhoao

News editor

Jun 6, 2023 at 06:28

The SEC sued the world’s largest cryptocurrency exchange, Binance, and its CEO, Changpeng Zhao, for violating securities regulations. The news hit the cryptocurrency market hard. For example, Bitcoin fell below $25.5K for the first time in two months, and only one asset out of the top 100 by market capitalization remained positive. We’ll discuss more about this, what the charges are, and why it might end badly below.

What happened?

The SEC filed charges against the largest cryptocurrency exchange on Monday, June 5. According to the complaint, Binance mishandled its customers’ funds and allegedly lied to regulators and depositors about transactions.

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Specifically, the charging document states that the exchange supposedly mixed billions of dollars in customer savings and then sent them without any publicity to a certain company called Merit Peak Limited, which, according to unconfirmed reports, is owned by Binance’s head Changpeng Zhao.

As for the lies, it is specified that the exchange lied about the adequacy of their systems for the detection and control of manipulative trading, as well as about the program in which customers from the United States had access only to Binance.US. Thus, as if the SEC is repeating its attempts to strengthen control over the existing exchanges and the industry as a whole.

To recap, this isn’t the first time Binance has come under the SEC’s radar. Several months ago, regulators accused the exchange of deviating from the laws to protect investors in the U.S.

For their part, representatives of the platform said that they had previously tried to resolve the conflict peacefully but were surprised and disappointed with the current decision of the SEC. In particular, representatives of the exchange did not agree with the previous accusations, recognizing them as wrong and therefore planning to defend themselves.

Who was affected by the SEC’s actions?

In short, the news affected almost the entire crypto market. In particular, the value of most cryptocurrencies dropped significantly. For example, Bitcoin has fallen to a two-month low since the middle of March and is trading at $25,678 at the time of writing. Compared to the previous day, the difference is 5,03%.

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Ethereum also fell, collapsing to $1812.58 (-3,06%) over the day. However, BNB, i.e., the native token, which is directly linked to Binance, suffered the most. The asset fell almost 8% overnight. Also among the top 15 cryptocurrencies by market capitalization, Dogecoin (-7%), Solana (-8,14%), and Polygon (-7,53%) showed a significant drop. Overall, the global market capitalization of the cryptocurrency market fell by 3,85% to $1.09T.

That it wasn’t just Binance-linked coins that were affected is no coincidence. As part of the charge, the regulator has expanded to name ten other cryptocurrencies that the SEC believes violate the Securities Act. In doing so, the authority’s restrictions on them have since been expanded. Among those are:

  • Solana (SOL).
  • Cardano (ADA).
  • Polygon (MATIC).
  • Cosmos (ATOM).
  • Sandbox (SAND).
  • Decentraland (MANA).
  • Algorand (ALGO).
  • Axie Infinity (AXS).
  • COTI (COTI).

However, it is worth noting that the regulator has not filed lawsuits against any of these assets but only against Binance. This is probably due to the fact that the Binance case is similar to that of FTX and its founder, Sam Backman-Fried, who also previously misappropriated users’ savings.

In all, the SEC has recognized 61 digital assets as securities at the time of this writing. However, what exactly is security in relation to cryptocurrencies has not yet been finalized, but somehow the regulator has already been able to do some damage to several cryptocurrencies thanks to the so-called Howie test.

However, not all cryptocurrencies were affected by the SEC’s actions. One of the few assets that is on the upside while most of the market is going down is Kava, a decentralized blockchain. The token is 67th in market capitalization and has shown 12% growth in the last few days.

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Binance supporters

The Binance case has affected the crypto market not only in price but also in the media space. Almost everyone is talking about the SEC case against the largest exchange. So, in defense of Binance, other representatives of the industry stood up. One of them was the founder of Cardano, Charles Hoskinson.

According to the businessman, the SEC’s current actions are “Checkpoint 2.0 in the U.S.,” whose ultimate goal is to regulate big banks and take full control of the financial lives of citizens. According to the founder of Cardano, what is happening now is not new, and a similar struggle between “freedom and authoritarianism” took place before. The way out of this situation, he believes, is to unite to “prevent the United States from slipping into an anti-utopia.”

Among others, crypto coach and crypto hunter Sumit Kapoor spoke in support of Binance and noted the contribution of Changpeng Zhao and the exchange to the development of the industry and the integration of millions of users in the crypto space.

“It doesn’t matter whether you use Binance or not, remember that the SEC is not against Binance only, it’s against this entire ecosystem. Divided we fall, united we stand,” he said.

At the same time, if there are opponents of Binance, then, according to trader Emperor, the closure of the exchange will not lead to anything good. This is what it may lead to.

  1. Will induce a crypto winter for years.
  2. Many smaller exchanges with great developers will die.
  3. Millions of innocent,  non-tech-savvy holders will lose their life savings.
  4. Institutions will wipeout, leaving projects dead.

What’s next?

Further, the forecasts are not quite good yet. The reason for that is that at the time of writing, it became known that the SEC, among other things, had filed a lawsuit against Coinbase, the largest platform for trading crypto-assets in the United States. Previously, such a move had only been suggested by some market experts, in particular Berenberg analyst Mark Palmer.

According to him, some of the details of the lawsuit filed by the SEC against Binance overlap with those against Bittrex and Kraken, which could become a preliminary version of the lawsuit against Coinbase. Which is actually what happened in the end.

The fact that one of the saddest predictions came true tells us that current events can have unfortunate consequences for the industry if, of course, something does not change. For now, we can watch the fall of Coinbase’s native token (COIN) in particular. And probably also how other cryptocurrencies will continue to fall.

At the same time, it might seem that while the market is going down, it’s a good time to buy. But it is better not to do anything rash because nobody knows exactly what the market is waiting for. The declines can be very long, so make sure you analyze the market thoroughly before making any investment decisions at this time.

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