Crypto's Future & Regulatory Scrutiny
The crypto world has endured the doldrums of a long winter dating back to last year, and it’s not clear at the moment when or if the seasons will ever change. Although major coins have quietly regained ground this year, their gains pale in comparison to the elongated scrutiny the industry now finds itself in.
Multiple crypto entities have fallen bashfully in the face of their sanguine claims, and now, even the top of the top are finding themselves amidst the flames.
How we got here
- 2022: A rough year brought us an array of events that hurt crypto’s morale even more. We witnessed the TerraUSD crash, a spree of crypto bankruptcies last summer, a stable, mundane Q3 as concerns lingered, and the biggest tsunami of all when the massive FTX fell victim to their own poor practices at year’s end.
- Then, crypto got a break, but the Securities Exchange Comission (SEC) wasn’t done. Crypto lost a lot of confidence last year, a giant in FTX, and a few other relevant leaders too. It still had Binance and Coinbase though, two of the world’s biggest exchanges, and… it still does, but recent revelations threaten to change the landscape.
- Coinbase recap: Coinbase, the largest crypto exchange in the U.S., couldn’t avoid the crossfire either. The SEC brought similar charges against the entity, charging it with being an unregistered securities exchange, broker, and clearing agency while also hitting them for the unregistered sale of securities via its staking programs.
- Binance recap: Binance is the world’s largest crypto exchange and was also the parasite that kicked off FTX’s demise. Now, it’s under siege by the SEC which has filed a total of 13 charges against the crypto giant, some of which include being an unregistered broker, misleading investors, and failing to restrict access to U.S. users.
Lawsuits and the future of crypto
- Coinbase implications: Those allegations noted, the SEC is essentially motioning to a large portion of assets that are traded on Coinbase as securities. If Coinbase were to be forced to stop trading these assets or cease its staking offerings, a large portion of its revenue would be at stake. “We estimate that at least 37% of Coinbase net revenue would be at risk if the SEC were to target the company's crypto token trading and staking operations," says Berenberg analyst Mark Palmer.
- Binance and Binance.US face more extreme allegations amongst the likes of FTX. Despite maintaining control of its U.S. assets for now, the exchange is still in choppy waters.
- Practically speaking, the charges brought against large crypto exchanges like these do represent an existential threat to the industry if these businesses aren’t able to come to some terms with the SEC.
- A best-case scenario is reform and compliance, but this is easier said than done. The exchanges and the SEC both have demands and needs, and whether or not these two can successfully be the leaders of industry reform and future compliance depends on the agreements that they come to.
- In a worst-case scenario, however, the crypto industry could be set back by a decade. If something catastrophic ever becomes of an exchange as trusted and popular as Coinbase, crypto fans in the U.S. wouldn’t have many other places to turn. And the loss of such a giant would put a crater in the sector that could set it back to its origins, set to rebuild from the ground up.
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