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What the SEC Lawsuit Against Coinbase and Binance Means for Cryptocurrencies

The SEC is on a mission against Coinbase (COIN) and cryptocurrency exchanges. On June 5, 2023, the SEC sued Binance, the world’s largest cryptocurrency exchange. It alleges the exchange violated securities regulations.

Binance may have mishandled customer funds by secretly sending them to a separate entity that Zhao controlled. If the SEC proves that Binance.US does not operate independently from its parent, it strengthens its case against Binance Changpeng Zhao.

The SEC requires digital tokens be qualified as securities and not currency. Since bitcoin (BTC-USD) and ethereum (ETH-USD) are not securities, their drop on June 5-6, 2023 is unreasonable. BTC-USD traded below $26,000 before bouncing back to ~$27,250. ETH bounced from nearly $1,800 to close to $1,900.

On June 6, the SEC sued Coinbase (COIN) for operating as an unregistered broker. The lawsuit is most peculiar. Why did the SEC allow Coinbase to list on the stock exchange?

Coinbase’s business plan allegedly deviated from its S-1 filing. The SEC said that Coinbase unlawfully facilitated the buying and selling of crypto asset securities. In addition, it violated securities law when it offered a staking rewards program without registering to offer or sell securities.

CEO Brian Armstrong always contended at quarterly conference calls that the company followed exchange rules.

Ultimately, the suit against Coinbase and Binance will not hurt cryptocurrenies. ETH and BTC are the strongest cryptos that will recover.