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The SEC’s Crypto Crackdown: What You Need to Know

Plus500 | Monday 12 June 2023

The week of June 12th has opened with a depressed sentiment on global Cryptocurrency markets due to recent events. Last week, the United States Securities and Exchange Commission filed lawsuits against two of the biggest players in the arena, Binance and Coinbase (COIN), raising concerns about a coming crackdown on digital coins.

Bitcoin regulatory image

SEC’s Place in U.S. Regulation

So what is the Securities and Exchange Commission (SEC), and how does it function? This agency, independent while still under the federal government, was established in 1934 at the height of the Great Depression. In its nearly 90 years of operation, the SEC has had as its purview maintaining market efficiency and preventing manipulations.

In pursuit of this ever-important goal, the Securities and Exchange Commission imposes strict regulations on public and other regulated companies in the United States, requiring them to submit periodic reports and accounts of their financial doings. These requirements are at the heart of the recent events shaking the Crypto markets.

New Asset Class Challenges Government

With digital coins being a relative newcomer to the global economy, the rules set in place at the time of the SEC’s founding were not adapted to the world of Crypto. Accordingly, there is some level of uncertainty as to how to classify Cryptocurrencies.

Gary Gensler, the Securities and Exchange Commission’s chair since 2021, has stated in the past that most digital tokens come under the purview of the SEC’s investor protection laws, thus requiring some trading platforms to register with the regulatory body. 

According to United States regulators, both Binance and Coinbase have violated American laws, thus spurring the SEC to file last week’s twin lawsuits. Allegedly, Binance has violated regulations governing security trading as well as misled investors by falsely reporting trading volumes on the exchange. On Tuesday, one day after Binance was served, Coinbase was also sued by the Securities and Exchange Commission due to its failure to comply with registration requirements.  (Source:Yahoo Finance)

Markets React

The Securities and Exchange Commission, which possesses broad regulatory powers, could opt to shut down Coinbase and Binance, and even go so far as to ban them permanently from operating in the Crypto industry stateside. In response, Coinbase shares lost more than 17% of their value last week.

However, the slippage was not limited to the aforementioned exchange itself. This week has opened with drops across major digital coins as investors and traders alike may be absorbing the potential implications of the United States’ regulatory crackdown. Nonetheless, while on Monday, June 12th, morning Bitcoin (BTCUSD) and Ethereum (ETHUSD) fell slightly, as of the time of the writing they have slightly edged up by 0.3% and 0.03% respectively. 

Uncertain Waters Ahead

It seems that the market may be bearing the brunt of the American government’s efforts to reach regulatory clarity with regard to this sphere of market activity. With the exception of Bitcoin, the current legal environment is unclear as to whether many Crypto coins are securities or Commodities

A new bill introduced by two Republican members of the House of Representatives aims to finally set in stone which firms need to register with the Securities and Exchange Commission and which with the Commodities Futures Trading Commission (CFTC). Furthermore, the SEC will need to create an overarching framework for the regulation of digital coins.

While there seems to be widespread agreement across the partisan aisle in Washington, D.C., regarding the need for clearer laws governing Crypto trading, the future for players in the industry is as yet opaque.

As it stands, the Securities and Exchange Commission’s legal battle with Coinbase and Binance could last years in the courts, and some coins could even be banned in the United States. Those watching the Crypto arena with their eyes peeled will have to see how the interlocking forces governing the markets play out.

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