The SEC’s intensified oversight on leading crypto exchanges Binance and Coinbase could reshape the industry over time, but analysts believe it won’t affect traders in the near term.
Key Takeaways:
The crypto market is heading for a transformative era, say analysts, as the Securities and Exchange Commission (SEC) heightens its focus on leading cryptocurrency exchanges, Binance and Coinbase. Despite this, they believe traders might not experience any immediate effects. Digital tokens are poised to maintain their trading momentum as the SEC works towards bringing these key exchanges under strict federal supervision – a process that could span years but would inevitably cause a paradigm shift in this decentralized sector if it comes to fruition.
The recent back-to-back legal actions against Binance and Coinbase by the SEC signify a new dawn in the prolonged government bid to regulate the crypto industry. Still, this crackdown is unlikely to alter the landscape for crypto investors in the immediate future, say industry observers.
At the heart of the SEC’s lawsuits is the demand for these predominant cryptocurrency trading platforms to comply with federal regulators. The SEC alleges the exchanges contravened numerous securities laws. By turning its gaze towards Binance, the leading global crypto exchange, and Coinbase, in second place, the commission has taken a significant leap towards imposing stringent measures on an industry that has largely enjoyed freedom from traditional financial regulations.
These regulatory maneuvers form part of the SEC’s sustained initiative to establish new protective measures. Crypto exchanges like Binance and Coinbase are expected to continue operations with minimal disruptions during the civil litigation, notes PitchBook’s crypto analyst, Robert Le.
While Le doesn’t foresee any significant shifts in the short term (roughly the next 3-5 years), he mentions the case of XRP, a digital coin that still trades amidst an ongoing SEC lawsuit against Ripple Labs since late 2020.
Early this week, Binance faced SEC charges, followed by Coinbase a day later. The SEC’s accusations against Binance extend to its founder, Changpeng Zhao. The commission alleges that the exchange misled its users about the usage of their funds, with purported customer assets funneled into Zhao-controlled entities.
Although both firms have contested the SEC’s allegations, their lawsuits haven’t notably rattled crypto investors. The most traded cryptocurrency, Bitcoin, experienced a dip on Monday, only to bounce back on Tuesday, trading around $27,000, a marked improvement from its position during the industry-wide dip known as the “crypto winter.”
Nevertheless, Better Markets President, Dennis Kelleher, sees the SEC’s actions as a clear warning to the public to be cautious in their crypto dealings.
The legal cases extend their reach beyond the exchanges, with the SEC aiming at the vital infrastructure of the cryptocurrency industry – an unwelcome move for crypto supporters like the Blockchain Association.
The ongoing legal battles may take time and even potentially fail. However, the steps taken this week could jeopardize many tokens offered on crypto exchanges. If the SEC delineates which token offerings on cryptocurrency exchanges are securities, these exchanges might need to delist them during the registration process. Such a move could significantly disrupt trading activity, warns Le.
SEC Chairman Gary Gensler has indicated his comfort with fewer cryptocurrencies, stating that there is no need for more digital currency.
Le suggests that while recent developments might deter some casual investors from actively trading cryptocurrencies, there are reasons to remain hopeful. Following a challenging year for the industry, with events such as the FTX meltdown and the Silvergate Bank crash, a successful bid to enforce more regulation on the major exchanges could enhance their credibility in the long run.
He posits that if these platforms are the first to register, it could bolster confidence among retail traders and prompt them to abandon unregistered exchanges.
