One of the most well-known crypto trading platforms is the target of a lawsuit being pursued by the US federal government.
According to data, the U.S. Securities and Exchange Commission filed a lawsuit against Coinbase on June 6. The federal authority asserts in a news release from June 6 that Coinbase operated an unregistered national securities exchange and broker using its cryptocurrency asset trading platform.
The SEC also claims that at least 13 crypto assets, including the tokens for Solana and Cardano, that Coinbase made available to consumers fall under the definition of “crypto asset securities, as stated in the complaint.
The SEC claims that Coinbase’s staking programme is both an investment contract and an unregistered securities since it allows cryptocurrency investors to earn financial returns through Coinbase’s managerial efforts.
Following the SEC’s announcement, Coinbase co-founder and CEO Brian Armstrong tweeted that they were proud to represent the industry in court to finally obtain some clarity regarding cryptocurrency regulations.
In the absence of clear regulations for the digital asset market, the SEC’s reliance on an enforcement-only strategy hurts businesses with a track record of compliance, like Coinbase, and America’s economic competitiveness, according to a statement from Paul Grewal, chief legal officer and general counsel of Coinbase. They’ll carry on doing business as usual in the meanwhile.
This comes just one day after the SEC filed a lawsuit against Binance, the largest cryptocurrency exchange in the world, and Changpeng Zhao, its founder. According to a press release from June 5, Zhao and his exchange are accused of conspiring to secretly permit high-value U.S. customers to continue trading on their unregulated international exchange despite publicly claiming that U.S. customers were not permitted to do so. The agency filed 13 charges against them both on June 5.
On Twitter, Zhao disputed the accusations.
What the SEC’s crackdown on crypto may mean for investors
The SEC may be doing exactly what many in the sector have suspected given the harsh tone coming from the organization and its Chair Gary Gensler: shut down crypto in the United States, Solidus Labs, a business that offers tools to assist crypto exchanges and institutions prevent market manipulation, was co-founded and led by Chen Arad, chief experience officer.
For crypto companies, the U.S. remains a crucial market. According to a January report, about 20% of Americans say they have invested, traded, or utilized cryptocurrencies, and about 42% of Americans between the ages of 18 and 34 say they participated in cryptocurrency trading.
However, platforms may choose to focus their attention on nations with more certain legal requirements in order to avoid the potential regulatory dangers associated with operating here, according to Arad.
Author of “Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms” and adjunct professor at Columbia Business School Omid Malekan concurs. According to him, given the complex regulatory environment, some cryptocurrency companies may decide to restrict the services they provide to customers in the United States.
He claims that’s harmful for American investors. It implies that they will have fewer options and probably pay more fees. Malekan is a devoted user of Coinbase and a shareholder in the company.
The SEC’s most recent enforcement action against cryptocurrency exchanges may have a positive outcome. According to Arad, now that the cases have been filed, the platforms can answer the accusations in open court while the general public can watch and listen.
Malekan warns that a large migration of cryptocurrency traders from other exchanges is not likely to happen any time soon. According to him, those who intended to remain away or depart have already done so. Those who are still utilizing services like Coinbase and investing are likely ok with the risks involved.
Arad claims, even though the current regulatory dynamic in the U.S. can have some impact on demand, the use of reputable crypto exchanges that are regulated in the U.S. is still one of the best and safest ways to buy cryptocurrency.
Does the suit affect bitcoin specifically?
The SEC’s complaint did not specifically mention Bitcoin, one of the most well-known cryptocurrencies. The Commodity Futures Trading Commission normally controls bitcoin since it has been determined that it qualifies as a commodity under the Commodity Exchange Act, according to the agency’s website.
According to Malekan, there is a widespread belief in the sector that as long as you are only trading bitcoin, you are probably fine.
Shortly after the SEC’s statement, cryptocurrency values increased. According to data, bitcoin prices increased on June 6 to just over $27,100 and it had dipped to about $25,800 as of June 12 at 11:09 a.m. EST.
Regulation of crypto platforms in the United States as of now
The “Howey test” is now one of the methods the SEC uses to evaluate whether an asset is an investment contract and, consequently, a security. The agency views a resource as a security that might be covered by federal securities legislation if it satisfies the following conditions:
- There is a monetary investment;
2. in a joint venture;
3. in which the investor anticipates profit; and
4. Profit is primarily derived from the efforts of others.
But according to Malekan, cryptocurrencies pose a number of regulatory issues and may call for a new regulatory structure.
He claims that self-driving cars are not governed by the same regulations that once applied to horses and buggies. We should probably have new rules with new financial instruments.
Trading cryptocurrency on an exchange vs. peer-to-peer
According to him, the whole purpose of crypto is that you can avoid depending on these kinds of intermediaries. Many times, people use them nevertheless because they make life easier, yet digital assets like bitcoin and many other cryptocurrencies exist outside of that system.
The ability to transact directly between buyers and sellers is one of the distinctive features of cryptocurrencies. A trustworthy provider’s hardware or virtual wallet is normally obtained first, followed by the creation of a public key and a private key.
However, these wallets don’t truly store your cryptocurrency. Instead, they read the public ledger that shows your balance and save your private key, which functions as a password-like method of accessing your cryptocurrency funds and carrying out transactions on a blockchain network.
You’re prepared to purchase cryptocurrency once you’ve configured your wallet and backed up your keys. And there are numerous methods to go about it.
Peer-to-peer trading and using an exchange both have advantages and disadvantages when it comes to trading cryptocurrencies. Using an exchange could provide you peace of mind knowing there is a company you can contact if a transaction goes incorrect, according to Malekan. However, there is still a possibility that an exchange could be hacked.
You gain more control over your money by holding and selling your digital assets yourself, but doing so also means you’ll be in charge of putting security and safety measures in place on your own. If you forget your private key, you might be unable to access your cryptocurrency and be locked out of your own wallet.
Only gamble with money you’re willing to potentially lose, advises Malekan, whether you decide to trade cryptocurrency through an exchange or peer-to-peer. Many financial professionals concur, too. Cryptocurrency is thought to be a very unpredictable investment that is susceptible to sharp price increases or falls.
