Crypto in the Crosshairs: Breaking Down the SEC's Actions Against Exchanges

We've got a bit of a spicy situation brewing up in the crypto world right now. If you've been keeping an eye on the news, you might have heard about the U.S. Securities and Exchange Commission (SEC) going after Coinbase and Binance - two of the biggest crypto exchanges on the planet.

Image prompted by PPG through MidJourney

What’s going on?

In a nutshell, the SEC is arguing that these exchanges have been trading a bunch of cryptocurrencies that are actually securities (think stocks or bonds). The SEC says that these should've been registered with them. To put it in simpler terms, it's a bit like the SEC saying, "Hey, you're playing in our backyard, but you didn't ask for permission."

Other exchanges like Kraken, Gemini, Crypto.com, and Okcoin might be in the hot seat next. They've all let U.S. investors trade the same tokens that got Coinbase and Binance into trouble. Some might even consider ditching these contentious tokens altogether to avoid the SEC's wrath.

The SEC's perspective

Under the leadership of Gary Gensler, the SEC has been pushing the idea that most tokens are securities. This means that they should play by the same rules as traditional financial assets. It's not about keeping people from making a quick buck, but about ensuring transparency and fairness in the market.

The SEC has already brought more than 130 crypto lawsuits and settlements, with some naming specific tokens as securities. Following this week's suits, the list now includes popular tokens like Solana, Cardano, and Polygon.

The crypto exchanges’ perspective

The exchanges, on the other hand, aren't exactly fans of this approach. They argue that many tokens are more like commodities (think gold or oil), and that the SEC shouldn't treat them as securities. They're calling for clear rules instead of the SEC asserting its authority through enforcement actions.

Kraken, for example, insists that they do not list securities and that they carry out risk and security evaluations for every asset they list.

Snippet of an email I received from Binance.US. It went on to say that they are going to pause USD fiat channels.

What happens next?

Well, the lawsuits will now go to court. This could take years, but they're already sending a strong message to the industry - the SEC means business. While large crypto companies might be able to take on the SEC, smaller ones might struggle. Some have already gone bankrupt following SEC enforcement actions.

Some crypto insiders are claiming that the SEC's aim is to disrupt the crypto economy in the U.S., but Gensler has suggested that a shake-up could be beneficial for investors.

Meanwhile, exchanges are looking for greener pastures. With about 90% of crypto trading happening outside the U.S., they might decide to shift their operations to regions with friendlier regulations. Coinbase has already hinted that it might move its global HQ out of the U.S.

So, stay tuned as we continue to see how this plays out. Whether you're rooting for the SEC or the exchanges, the decisions made in the coming months could significantly shape the future of the crypto industry.