As we delve into the legal skirmishes between the U.S. Securities and Exchange Commission (SEC) and cryptocurrency exchanges, we encounter a tale of two enterprises: Binance, which recently faced new allegations, and Coinbase, coming under the SEC's scrutiny for the first time. Our analysis will illustrate the legal allegations and subsequent ramifications by meticulously unpacking each case and providing relevant data context.
Unpacking the SEC's Allegations against Binance
Binance, helmed by Changpeng Zhao (CZ), stands accused of various regulatory breaches. The SEC's accusations extend previous assertions made by the Commodity Futures Trading Commission (CFTC) but also offer fresh insights, particularly emphasizing Binance.US and CZ's array of business operations.
Central to the SEC's case is the claim that BINANCE courted U.S. investors, who, in March 2020, accounted for 70% of the global VIP volume, dropping slightly to 63% by May 2021. These transactions allegedly took place on an unregistered platform, leading the SEC to characterize Binance as an unauthorized exchange, broker, dealer, and clearing agency.
Furthermore, Binance and its U.S. affiliate are accused of unregistered securities offerings and sales, involving not only BNB and BUSD, but also BNB Vault and Simple Earn. The listed securities also encompass a range of cryptocurrencies such as SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI.
Binance purportedly created two U.S. entities, BAM Management and BAM Trading, claiming independent control over Binance.US. The SEC argues, however, that CZ maintained considerable influence over their operations. Binance.US also employed two market makers – Sigma Chain and Merit Peak – allegedly both under CZ's control.
The charges further imply that BAM did not enforce trade surveillance or manipulative trading safeguards for Binance.US until February 2022. Moreover, the SEC alleges that Sigma Chain, a CZ-owned trading firm, partook in wash trading on Binance.US from September 2019 to June 23, 2022.
Unveiling the SEC's Case against Coinbase
While COINBASE is likewise accused of operating as an unregistered broker, securities exchange, and clearing agency, the allegations raised against this platform involve different securities, including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO. Moreover, Coinbase has reportedly listed tokens such as AMP, DDX, LCX, OMG, POWR, RLY (since delisted), and XYO, which the SEC had previously deemed as securities in enforcement actions.
The allegations also imply that Coinbase's staking offerings—presently available for XTZ, ATOM, ETH, ADA, and SOL—qualify as unauthorized securities sales. Moreover, the SEC argues that Coinbase collaborated with issuers to rectify "problematic statements" to avoid attracting SEC attention.
Reflection on SEC Actions: Is Every Token a Security?
The charges laid out this week exemplify SEC Chairman Gary Gensler's frequent proclamation that the majority of cryptocurrencies should be classified as securities. This argument previously resulted in charges against Bittrex, a cryptocurrency exchange that filed for bankruptcy in May after being considered the most aggressive U.S. exchange in terms of token listing. In May 2022, Bittrex's listing hit an all-time high with over 1,000 instruments.
Coinbase also notably ramped up its listing efforts in 2021, with its 130 instruments at the start of the year growing to over 400 by year's end. This figure does not account for the thousands of tokens accessible via the Coinbase Wallet, which works with decentralized exchanges (DEXs) such as Uniswap and Sushiswap. Interestingly, the SEC included NEXO in its list of unregistered securities provided by Coinbase, a token exclusively available through the Wallet feature.
