Gary Gensler, chairman of the U.S. Securities and Exchange Commission, takes his seat before the start of a Senate Banking, Housing and Urban Affairs Committee hearing on oversight of the U.S. Securities and Exchange Commission on Tuesday, Sept. 14, 2021 Mr.
Bill Clark | CQ-Roll Call, Inc. | Getty Images
SEC Chairman Gary Gensler stepped up his attack on the crypto industry this week by filing a lawsuit Coinbase and Binance for securities violations and casting doubt on the future of token trading.
Crypto investors got the hint. Four of the 10 most valuable coins tumbled in value by at least 15% this week, according to CoinMarketCap, a selloff sparked by the lawsuits and Gensler’s interview with CNBC on Tuesday, in which he said “we don’t need more digital currency. “
In the allegation that Coinbase acts as an unregistered broker and exchange, the SEC said at least 13 crypto assets available to the company’s customers are considered “crypto asset securities.” These include Solana’s SOL token, Cardano’s ADA token, Polygon’s MATIC coin, and Protocol Labs’ Filecoin token (FIL).
Trading application Robin Hood followed on Friday by announcing that as of June 27, it will no longer support trading of coins from Cardano, Polygon, and Solana. The company said “no other coins are affected.” Also on Friday, Crypto.com said it will close its US institutional exchange.
“No other coins are affected and your crypto is still safe on Robinhood,” the company said in a post.
Cardano coin, the seventh most valuable cryptocurrency according to CoinMarketCap, has tumbled 20% in the past week. Solana, ranked ninth, was down 18%. Polygon, ranked 10th, was also down 18%. Filecoin, which is further down the list, is down 19%. Binance’s BNB token, ranked fourth, fell 16%.
Bitcoin and ethereumthe two most popular cryptocurrencies were more stable, each falling by less than 5%.
Gensler, who was appointed to head the SEC by President Biden in 2021, has spent much of the past year going after crypto firms and exchanges for effectively selling highly speculative and risky securities disguised as something else.
From high-profile fraud cases involving Sam Bankman-Fried’s FTX and Do Kwon’s Terraform Labs to dozens of allegations involving coin offerings and alleged false marketing, Gensler has made the once-thriving crypto industry his primary target for takedowns.
“The investment public has benefited from the U.S. securities laws,” Gensler said in an interview on CNBC’s “Squawk on the Street” on Tuesday. “Crypto shouldn’t be any different and these platforms, these intermediaries need to come into line.”
Gensler’s TV appearance came after the SEC sued Coinbase and said the company should be “permanently restricted and prohibited” from “operating its crypto asset trading platform as an unregistered national securities exchange, broker and clearing agency.”
Shares of Coinbase, the only major crypto exchange publicly traded in the US, have sunk 18% this week. Coinbase Chief Legal Officer Paul Grewal told CNBC in a statement that the SEC’s approach to enforcement without setting out clear rules “hurts America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance.”
A day earlier, in its lawsuit against Binance, the SEC alleged that the company and founder Changpeng Zhao took billions of dollars worth of user funds and sent them to a European company controlled by Zhao.
While Binance claims it has no official headquarters and conducts most of its business overseas, the SEC complaint cites a senior executive who allegedly told a compliance officer that the company operates as a “[f—ing] an unlicensed US stock exchange bro.”
In a blog post, Binance said it was “disappointed” by the SEC’s claim and said it was “engaged in extensive good faith discussions to reach a negotiated settlement to resolve their investigations.”
Others named in the lawsuit against the SEC also came forward after the charges were filed this week.
The Cardano Foundation, which works to advance the use of its eponymous technology, said in a tweet that it disagreed with the labeling of its ADA coin as a security and “look forward to continuing to engage with regulators and policymakers to achieve legal clarity and security in these matters.”
Protocol Labs, the developer of Filecoin, said in a series of tweets on Thursday that the token is critical to the operation of its distributed storage network. This is how people buy storage from vendors, and Protocol says the cost is much less than what consumers would pay Amazon Web services or Google A cloud.
“Filecoin is a cryptocurrency-powered global storage network that stores the most important information for humanity, not security,” Protocol Labs tweeted.
In its 101-page complaint against Coinbase, the SEC made it clear that regardless of whether these tokens have any level of utility, they can easily be purchased in-app by people who have no interest other than investing. And Coinbase generates revenue by making these trades.
“Coinbase makes these crypto assets available for trading,” the SEC said, “without limiting transactions to those who might acquire or treat the asset as anything other than an investment.”
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