US SEC has filed 130 cases against crypto firms so far

Crypto exchanges have argued that their offerings – tokens – are unlike securities and, thus, their exchanges are not like those that need to subject themselves to the usual rules

Two lawsuits filed this week by the US Securities and Exchange Commission (SEC) could possibly determine the future of cryptocurrency.

Binance.com, the world’s biggest crypto exchange, associated entities and founder Changpeng Zhao were the target of the first lawsuit, which was filed on June 5. The next day the Securities and Exchange Commission filed its second suit, now against Coinbase, another big crypto exchange.

There is nothing about the crypto securities markets which indicates that investors and issuers are less worthy of the safeguards of our securities laws, Securities and Exchange Commission chair Gary Gensler stated in a speech just days later on Thursday.

Gensler further said that crypto exchanges and promoters have long been aware of the rules of the road for crypto trading – through SEC orders and enforcement actions – but they have opted to ignore them or disregard as they may have made a calculated economic decision to take the risk of enforcement as the cost of doing business.

You just cannot ignore the rules because you do not like them or because you would prefer different ones: the consequences for the investing public are far too great, Gurbir S. Grewal, head of the Securities and Exchange Commission’s enforcement division, said with regard to the Coinbase lawsuit.

Starting out with nothing in 2009-10, crypto is now estimated to be a $1trln business, operating mostly in a regulatory grey zone.

Crypto exchanges have argued that their offerings – tokens – are unlike securities and, thus, their exchanges are not like those that need to subject themselves to the standard rules.

The SEC differs. And under the supervision of Gensler, who was appointed by US President Joe Biden in 2021, it has sought to assert its jurisdiction over the crypto exchanges contending, its offerings – tokens – are securities and they must be registered with the regulator as others and so should their exchanges.

It has brought nearly 130 crypto lawsuits until now, compelling smaller firms to close down and others, who can afford the high cost of lawsuit, to settlements.

Bitcoin and Coinbase face fines if judges side with the Securities and Exchange Commission or settlements. These are civil suits and will not lead to imprisonment, but the Department of Justice (DOJ) could jump in at any stage in these or other cases, then jail terms become a possibility.

Sam Bankman-Fried, founder and head of FTX crypto exchange that went into liquidation in November last year, was among those who heard from the DOJ, and is now facing jail. He is accused of stealing money from FTX customers for expensive purchases for himself, donations to politicians and risky trade deals.

FTX and similar collapses await investors due to crypto exchange and their promoters’ non-compliance of rules that apply to securities trade in general.

These kinds of misconduct and insolvencies are more likely to happen in markets whose issuers and intermediaries fail to abide with foundational laws, Securities and Exchange Commission chair Gensler has stated, further saying: Even when we might not find fraud or such blatant misconduct, investors require proper disclosure, segregation of their hard-earned assets, and confidence that they are not trading against the house.

Binance, which has rejected the Securities and Exchange Commission’s charges and has said it will contest them in court, has been accused of, among other things, “wash trading” to bolster trading volumes.