{"id":27736,"date":"2023-06-26T09:30:12","date_gmt":"2023-06-26T08:30:12","guid":{"rendered":"https:\/\/research.reading.ac.uk\/research-blog\/?p=27736"},"modified":"2023-06-21T16:25:20","modified_gmt":"2023-06-21T15:25:20","slug":"us-regulators-continue-crypto-crackdown-but-heres-why-the-latest-charges-are-different","status":"publish","type":"post","link":"https:\/\/research.reading.ac.uk\/research-blog\/2023\/06\/26\/us-regulators-continue-crypto-crackdown-but-heres-why-the-latest-charges-are-different\/","title":{"rendered":"US regulators continue crypto crackdown \u2013 but here\u2019s why the latest charges are different"},"content":{"rendered":"

The US Securities and Exchange Commission (SEC) sued the cryptocurrency platform Coinbase shortly after launching a lawsuit against the world\u2019s largest cryptocurrency exchange, Binance.<\/p>\n

\"Phone<\/p>\n

This isn\u2019t the first time Binance and Coinbase have caught\u00a0the SEC\u2019s attention \u2013 it\u2019s not even the first time this year<\/a>. But\u00a0the latest charges<\/a>\u00a0are much more\u00a0serious<\/a>, including accusations that the exchanges are operating without the correct registration.<\/p>\n

Both cases boil down to whether or not cryptocurrency tokens should be classed as \u201csecurities\u201d, like stocks, and regulated in the same way. Binance and Coinbase have spoken out in support of regulation. And many\u00a0crypto firms believe<\/a>\u00a0that by taking legal action instead of creating clear rules, the SEC has failed to provide the industry with enough guidance, leading to uncertainty for people and businesses.<\/p>\n

Since Gary Gensler became chair of the SEC in April 2021, he has regularly testified before Senate committees on the need for\u00a0more staff<\/a>\u00a0to regulate cryptocurrencies, calling the market a \u201cwild west<\/a>\u201d. On the other hand, he has also said he has no plans to\u00a0ban cryptocurrencies<\/a>, while the SEC approved the first\u00a0Bitcoin ETF<\/a>\u00a0in 2021, as well as\u00a0Coinbase\u2019s stock exchange listing<\/a>\u00a0that same year.<\/p>\n

But now the SEC has filed\u00a013 charges against Binance<\/a>\u00a0and its founder Changpeng Zhao, as well as a motion to\u00a0freeze assets<\/a>\u00a0belonging to Binance\u2019s US affiliate (Binance is based in the Cayman Islands). The SEC has also accused both Binance and Coinbase of operating unregistered exchanges, and offering the sale of unregistered securities in the form of crypto tokens.<\/p>\n

Binance has pledged<\/a>\u00a0to vigorously defend itself against the lawsuit, which it said reflected the SEC\u2019s \u201cmisguided and conscious refusal\u201d to provide guidance and clarity on regulation to the cryptocurrency industry.<\/p>\n

Coinbase\u2019s chief legal officer said\u00a0in a statement to CNBC<\/a>\u00a0about the charges that \u201cthe SEC\u2019s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America\u2019s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance\u201d.<\/p>\n

He called for legislation that \u201callows fair rules for the road to be developed transparently and applied equally, not litigation\u201d.<\/p>\n

Counting the costs<\/h2>\n

These cases are similar to another brought against\u00a0a crypto company called Ripple Labs<\/a>\u00a0by the SEC in December 2020. It argues that XRP, Ripple\u2019s cryptocurrency token, is an unregistered security. Ripple disputes this and expects to spend US$200 million (\u00a3156 million) fighting the suit,\u00a0according to its CEO<\/a>. He argues such cases are preventing US innovation around the blockchain technology that powers crypto trading.<\/p>\n

At the heart of this case is the question of whether Ripple\u2019s token satisfies\u00a0the Howey test<\/a>, which would deem it a security, just like a stock or a bond, for regulation purposes. The test sets out three key criteria for deciding whether a financial product should come under securities regulations:<\/p>\n