Bitcoin or the Only Safe Cryptocurrency After SEC Indictment

Author: Lincoln Murr, Mary Liu than push BitpushNews

The uproar over the U.S. Securities and Exchange Commission’s (SEC) sudden prosecution of Coinbase and Binance could set a precedent and ultimately provide regulatory guidance for the crypto industry for the next decade and beyond. This article will analyze the lawsuit and its basis, possible outcomes, and how different cryptocurrencies will be affected.

Ever since Gary Gensler was sworn in as SEC chairman in 2021, the industry has been predicting stricter cryptocurrency regulation. Gensler mentioned when he was a professor of blockchain at the Massachusetts Institute of Technology that many cryptocurrencies are likely to be securities, which means that they should be regulated by the SEC and under the jurisdiction of the US government. The SEC has already taken enforcement actions against some industry companies and projects, such as Ripple Labs, LBRY, Kraken, etc. Looking at it now, it seems likely that the SEC will “practice” with smaller companies before taking action against the two largest and most famous exchanges.

The SEC said in the lawsuit that Coinbase acted as an unregistered exchange as well as a broker and clearinghouse, meaning it provided not only a medium of exchange but also liquidity and intermediary services, creating a potential conflict of interest.

Binance, on the other hand, faced more charges due to its separate Binance US exchange. The SEC said that Binance founder Changpeng Zhao had enormous control over Binance US and used it to list BNB, knowing that BNB was likely to be a security, and attempting to defraud VIP users into regular Binance exchange.

Both companies face charges related to listing unregistered securities. The SEC classifies 19 tokens as securities, including coins with high market caps such as BNB, Cosmos’ ATOM, Solana, Algorand, Cardano, Polygon, and Filecoin. Even Binance’s stablecoin, BUSD, was labeled a security, but oddly, the Coinbase-backed stablecoin, USDC, remained unscathed.

As shown in the image below, the SEC may have simply intercepted the "tradable" page on Coinbase and selected the top assets, which would explain why ATOMs were named in Binance's lawsuit but not in Coinbase, even though both trade ATOMs. This shows a lack of understanding by the SEC and could be a good sign for Coinbase's fate.

The outcome of the lawsuit will change the cryptocurrency industry forever. If the SEC wins, it will have greater control over exchanges and cryptocurrencies that may be securities. Of the two, Binance is more likely to lose the case because of the involvement of the listing platform coin BNB and Changpeng Zhao and the evidence. Additionally, the SEC has applied to freeze assets of Binance US, which they have not done with Coinbase.

If the SEC wins the lawsuit on the grounds that listed cryptocurrencies are securities, it will fundamentally change how the cryptocurrency industry works. For smart contract protocols like Polygon and Solana, labeling them securities raises many questions, such as how users must record what they use to pay transaction fees, the legal status of validators, and whether any DeFi applications are legally authorized to exist . These labels are arguably more damaging to the long-term health of the industry than the Binance shutdown, and require a new classification for these types of assets.

If the SEC loses the case (which is unlikely given the amount of allegations and evidence), the cryptocurrency industry will be in a better position than ever. Lighter regulation will give companies more opportunities to take risks and offer unique services, and cryptocurrencies will safely live on.

Given all the information above, the only cryptocurrency that is guaranteed to be safe is Bitcoin, as it has been declared a non-security. Gensler has always wanted to classify Ethereum as a security, but the two lawsuits do not list ETH, which means that the SEC is either waiting for the case to form a stronger legal argument against it, or they cannot find a basis. Either way, ETH is safe now, but not forever.

The two lawsuits may take years to settle, and many issues cannot be settled now. While some sort of cryptocurrency regulation was expected during Gensler's tenure, it unfortunately took the form of allegations and lawsuits rather than cooperation and innovation-friendly solutions. Only time will tell how this event will change Web3, but one thing is certain: the outcome of this case will not affect the promise of blockchain to create a more decentralized, transparent and censorship-resistant internet.