The Securities and Exchange Commission and Binance are engaged in a legal battle, and one of the opening rounds of the battle puts the users of the exchange in an uncomfortable front row. As a result, some users may be unsure of whether to stay in the fight or leave.
Ultimately, experts say, it comes down to how much risk a person can take.
The largest cryptocurrency exchange in the world, Binance, has allegedly mishandled customer assets and operated as an unregistered securities exchange, according to the SEC. The regulator is currently requesting that a federal judge activate a freeze on the assets connected to Binance.US, the business’ exchange for residents of the United States. According to documents filed by the SEC’s attorneys, it is an attempt to preserve the status quo while the legal action is ongoing.
The asset freeze is “draconian and unduly burdensome,” according to Binance.US attorneys stated, adding that the harm would rest on Binance.US clients while basically putting the platform and affiliated holding entities out of business.
Customers’ crypto assets and fiat money were secure, the attorneys claimed in court documents.
Binance.US had already announced that it would stop accepting deposits in US dollars and recurring buy orders as of last Friday. In order to prevent consumers from withdrawing money from the exchange as soon as Tuesday, payment and banking partners are prepared to do so. The platform’s capacity for receiving deposits and carrying out withdrawals “will be impacted, it stated on Twitter.
Until they find more reliable banking partners, Binance.US will continue to be a cryptocurrency-only exchange, at least temporarily, Binance.US stated in a statement last week.
Judge Amy Berman Jackson of the District Court for Washington, D.C., is hearing the SEC motion.
The SEC recently hit the cryptocurrency industry with a one-two punch, which includes the Binance case. In a separate lawsuit, the SEC accuses Coinbase of running an unlicensed securities exchange, brokerage, and clearing agency.
Investors in cryptocurrencies could be anxious about how to retain possession of their assets while the judge chooses how to rule on Binance.US assets. A large portion of cryptocurrency investors are young, just beginning to amass wealth, and are already noting red flags for the currency.
A well-known exchange called FTX entered bankruptcy proceedings last year. Sam Bankman-Fried, the organization’s founder, is being prosecuted but has entered a not guilty plea. A tarnished list of cryptocurrency lenders and brokerages in bankruptcy includes FTX.
Mark Hays, senior policy analyst at Americans For Financial Reform, a coalition in favor of stricter regulation in the nascent industry, claimed that getting into cryptocurrency is really simple. What many don’t realize is that they don’t have some of the same protections that regular investors do when it comes to their funds because these exchanges are sometimes currently either unregulated or inadequately regulated – and in some cases, are refusing compliance.
Are customer assets safe at Coinbase and Binance?
Yes, as per the exchanges. They have emphasized this in both court documents and public pronouncements.
A spokesman told MarketWatch on Tuesday that customer assets are secure and safe at Coinbase.
According to attorneys in court documents filed on Monday, customer assets at Binance.US are safe, properly separated, and accessible to customers.
Binance and Coinbase.US claimed to have reserves for client assets that are 1:1. According to the company website, Coinbase stores client funds in institutions that are covered by the Federal Deposit Insurance Corporation, providing $250,000 in protection for each depositor and each account. According to Coinbase, money market mutual funds, which are cautious and extremely liquid, receive larger cash holdings.
The case brought against Coinbase, according to its CEO Brian Armstrong, is “very different from others out there” because it only focuses on the definitions of what constitutes a security.
In order to ensure that dollar deposits are kept in accounts at FDIC-insured institutions, Binance said that it worked with custodians.
Others hold reservations. People who have money and assets on the market “should think long and hard” about the issue of safety, Hays insisted, stressing that he wasn’t giving investment advice.
No “bad apples” are being singled out in the lawsuits; rather, the regulators are responding to “systemic” flaws in the brand-new realm of cryptocurrency investing, he claimed.
He gave the Securities Investor Protection Corporation as an excellent example of coverage. Federal legislation established the nonprofit SIPC in 1970. Although not a government institution, the group intervenes to recover investor assets that go missing when brokerage firm members falter.
Up to $500,000 in securities and cash is covered by SIPC, albeit there is a $250,000 cash restriction. The coverage does not offer protection from market turbulence or incorrect investment advice; rather, it applies when businesses liquidate.
According to Josephine Wang, president and chief executive officer of SIPC, two events must take place before coverage kicks in. Customers must be owed “securities or related cash,” according to her, and they must hold their money and assets with a member firm.
According to Josephine Wang, president and chief executive officer of SIPC, two events must take place before coverage kicks in. Customers must be owed “securities or related cash,” according to her, and they must hold their money and assets with a member firm.
Unregistered investment contracts are not considered ‘security’ under the law establishing SIPC. According to the SIPC Act, cryptocurrency assets are not securities and cannot be considered client property until they are registered with the SEC, according to Wang.
According to Wang, Binance is not a part of SIPC. Two of Coinbase’s broker-dealers are SIPC members, according a source familiar with the company. The Financial Industry Regulatory Authority (FINRA), however, has not yet given the corporation permission to utilize them for digital asset securities, the source said.
Brokerage firms are regulated by FINRA, a nonprofit organization under the SEC’s control.
What are alternatives?
Where do people go next if they decide to remove their digital assets from Binance and Coinbase? The options include decentralized finance, personal cryptocurrency wallets, and exchanges.
The “most trustworthy exchanges,” according to lawyer Blake Harris, who specializes in asset protection for clients, are Binance, Coinbase, and Crypto.com.
He will not declare that he believes Binance or Coinbase are doomed. In general, Harris remarked that if people wanted to deposit their money on exchanges, he wouldn’t necessarily do it all on one exchange.
Another alternative is to put the cryptocurrency in an offline wallet, which is referred to as “cold storage.”
According to Hays, one risk is losing or forgetting the codes, passwords, and recovery phrases required to re-access the wallet after the cryptocurrency is inside. He also mentioned the possibility of misplacing it. Hays said that another risk is defective design and coding flaws that prevent access. Still, Harris said he liked the idea of cold storage, but only under certain conditions.
Banks were created for a reason. Harris claimed that people are not very good at keeping their own money safe. According to Harris, it might be a move for a tech-savvy investor who has less than $10,000 in cryptocurrency.
Investors who hold more cryptocurrency are more likely to face legal action and become the target of robberies.
Decentralized finance, often known as DeFi, is another choice. DeFi is a peer-to-peer payment system that avoids middlemen like banks or brokerages. Hays noted that there are cybersecurity dangers as well as risks associated with having money invested in securities and coins that a person may not want.
Whatever the path, Hays noted that “risk abounds in this arena”. What kind of risk you are willing to take is actually all that matters.
