The Securities and Exchanges Commission’s (SEC) suit against the biggest crypto exchange in the world, Binance, could be a huge misstep if other countries allow the crypto industry to develop and it eventually replaces the traditional banking sector, Jim Bianco, president and founder of Bianco Research said.
“If crypto is the design of the next financial system, this [lawsuit] is a huge mistake,” Bianco told CoinDesk via email, saying that the enforcement action against Binance is another attempt by U.S. lawmakers to “drive crypto out of the [country].”
On Monday, the SEC filed a lawsuit against Changpeng Zhao’s crypto exchange on allegations that it has been offering unregistered securities and staking services to the general public, violating U.S. securities laws.
This comes after the Commission sued Justin Sun and three of his companies earlier this year for the unregistered offer and sale of crypto asset securities, similar to the action it brought against Binance.
“This meaningful action from the SEC signals the beginning of a shift in the U.S. towards regulated market infrastructure for crypto, which ultimately should help the industry move forward,” said Aaron Kaplan, co-CEO and co-founder of Prometheum Inc, the parent company of SEC and FINRA-registered digital asset securities trading platform Prometheum ATS and SEC-qualified custodian Prometheum Ember Capital.
“The competitive landscape will look quite different, but I anticipate it will result in a net benefit for U.S. investors and should allow innovation to thrive,” Kaplan added.
In a statement to CoinDesk, a Binance spokesperson confirmed that the exchange had received a Wells Notice, a warning from the SEC, earlier this year that ultimately led to a suit. U.S.-based exchange Coinbase also received a warning in March that it may face an enforcement action due to its listing of potential unregistered securities.
While Coinbase is still committed to the U.S., this led to the exchange doubling down on its operations elsewhere, including Canada and Seychelles. Coinbase (COIN) shares dropped 10% on Monday following news of the Binance lawsuit.
“Ongoing lack of regulatory clarity is creating a situation in which digital asset ventures are leaving the United States for friendlier jurisdictions, potentially depriving the U.S. of jobs and innovation at home,” said Richard Mico, the U.S. CEO and Chief Legal Officer of Banxa, a payment-and-compliance infrastructure provider.
While the action against Binance signals a further crackdown on the industry, some experts welcomed the SEC’s suit.
“The SEC's legal action against Binance in the United States seems not only warranted but also somewhat overdue,” said Steve Rosenblum, founder of Libertify.com, a risk management platform, said. “Binance has attracted criticism for its perceived lack of operational transparency. High-ranking executives within the company seem to be largely inaccessible, further contributing to this concern.”
Similarly, Valerii Brizhatiuk, co-founder of Swisstronik, an identity-based L1, said that “players such as Binance have a wide range of features, products and investing services. Sometimes directing these products and services to support the global user base, but still adhere to the U.S. regulation, could pose a challenge.”
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.