The ongoing clash between the SEC on the one hand, and Binance and Coinbase on the other, could have profound consequences for the entire crypto landscape.
This is stated by CoinShares’ head of research, James Butterfill, who recently published in an official blog post a research by Townsend Lansing, Nick Du Cros and Benoit Pellevoizin entitled “Two Visions for Crypto.”
Indeed, if the SEC were to win this fight, the regulatory landscape regarding cryptocurrencies would in fact be radically altered, because it would potentially limit access to only Wall Street regulated operators.
SEC vs Binance and Coinbase: the securities matter
The matter is always the same: cryptocurrencies as securities.
In fact, not only would cryptocurrencies recognized as securities have to get explicit SEC approval in order to be sold freely and lawfully, but exchanges would also have to get it.
This could exclude crypto exchanges themselves, in favor of traditional operators already registered as authorized platforms for the trading of securities.
Indeed, according to CoinShares researchers, it is possible that in the US any regulatory restrictions will make the cryptocurrency industry very similar to the existing financial system, with its established regulations and institutions.
The two visions
However, these legal developments are emerging against a backdrop of a clear divergence between what is happening in the US and what has already happened in the European Union.
In fact, native financial players in the crypto sector seem increasingly ready to promote significant progress within a more permissive regulatory environment, such as that of the EU or other countries that are developing a specific legal framework dedicated to cryptocurrencies.
In other words, the overall situation in the US seems to be really disfavoring the evolution of the US crypto industry, despite past proclamations and despite some existing crypto hubs in the country, such as Miami.
Truth be told, it seems that those siding against the crypto industry are mostly Democrats, while Republicans seem more supportive, most notably the primary candidate Ron DeSantis, governor of Florida.
The fact remains that in the meantime the EU has armed itself with the MiCA (Markets in Crypto-Assets) framework, which is expected to come into full effect from the end of 2024 and which recognizes digital assets as a new asset class. This greatly simplifies things, and more importantly clarifies their nature, while supporting innovators fighting for regulatory compliance in this field.
In contrast, the US approach to the crypto sector currently lacks political guidance, and is driven not by parliament but by the SEC and regulators. This approach turns out to be less lenient on, for example, any previous conduct that is not in compliance with the rules, as well as being pervaded by a persistent lack of clarity about the regulatory environment.
Binance and Coinbase struggle against the SEC
The two exchanges thus find themselves in the middle of a quagmire, perhaps not even knowing quite what to do yet.
Indeed, the serious allegations against them require thorough examination, as CoinShares researchers point out.
However, they also point out that the way in which the SEC is cracking down especially on the US-based Coinbase, which it cleared to go public only two years ago, highlights the need for explicit definitions and standards within the crypto industry.
For Binance, the situation is more serious, but it concerns only its platform for the US market, i.e., the one in the minority.
Ultimately, crypto exchanges in the US could end up losing control of the crypto industry to traditional financial institutions, with profound negative implications for the power of innovation and democratization inherent in blockchain technology.
All of this really revolves around one specific central point: regulatory certainty.
In the EU it exists, just as it does in Switzerland, the United Arab Emirates and Hong Kong. In the United States, on the other hand, regulatory certainty is not there yet.
CoinShares researchers say the consequence could be an imminent shift in trading volume and innovation in this field from the US to jurisdictions with more accommodating regulatory scenarios. Such a shift could have “significant economic and strategic repercussions for the U.S. within the burgeoning digital asset space.”
However, they also point out how the current lawsuits against Binance and Coinbase are unlikely to spell doom for the entire crypto industry, because they merely underscore the need for robust regulations to protect investors and maintain market integrity.
So those countries that will be able to give regulatory clarity to the sector will enable the development of an innovative financial system, while those that are stubbornly limited to trying to integrate and absorb it within the existing system will miss this opportunity and pay the consequences.
Fewer and fewer crypto operators will be willing to operate within a framework where there is no regulatory certainty, but instead of simply closing their doors instead they will presumably move to other countries where this regulatory clarity is already there.