SEC vs Crypto Exchanges: Legal Actions and Industry Repercussions

A new SEC lawsuit against Binance and one against Coinbase, there will be reprecussions, but what are they?
by Yoaquim Boom
June 11, 2023

The SEC vs Crypto Exchanges

The recent legal actions taken by the U.S. Securities and Exchange Commission (SEC) against Coinbase and Binance will likely have brought significant repercussions for the entire cryptocurrency industry.

These lawsuits, filed against two of the world's largest crypto exchanges, mark a pivotal moment in the ongoing struggle to navigate the complex regulatory landscape.

It has been a whirlwind for the past week in the crypto ecosystem, with the SEC unleashing lawsuits against Binance and Coinbase, sending shockwaves throughout the industry, including price drops of over 20% on select crypto projects.

SEC's lawsuit targeting Binance and its founder, Changpeng "CZ" Zhao, alleged violations of U.S. securities laws. The SEC's allegations range from misleading customers to diverting funds into CZ's personal investment fund, operating unregistered entities, and selling unregistered securities such as BNB and BUSD.

Simultaneously, the SEC submitted an emergency motion requesting the freezing of Binance U.S.'s assets, citing the need to safeguard customer assets and prevent the dissipation of available resources.

According to the SEC this is a necessary step due to Binance’s history ofin ‘non-compliance, evasion of regulatory oversight, and questionable financial transfers’, as well as concerns about the custody and control of Customer Assets.

I believe it is crucial to distinguish between the allegations of securities violations against both exchanges and the additional fraud charges leveled against Binance.

While some form of securities regulation has long been anticipated in the industry, with the SEC having already come after Ripple (XRP) and SEC chairman Garry Gensler having announced all crypto projects accept bitcoin are in his eyes securities, the commingling of funds and the motion to freeze assets represents a more severe accusation.

To add fuel to the fire, Coinbase found itself on the SEC's hit list just one day later, as the regulatory body filed a lawsuit against the firm on Tuesday morning. This development was not entirely unexpected, as the SEC had anbnounced it was looking deeper into Coinbase back in March.

The SEC accuses Coinbase of listing unregistered securities and providing its staking program without appropriate securities registration.

So far both Binance and Coinbase have asserted nothing but confidence in the light of these allegations. Making bold statements of confidence and scrutinizing the SEC’s actions as “regulation by enforcement” rather than regulation by proper practice of law.

SP500 stock price sits right at resistance - facing both an orderblock and the 61.8% Fibonacci retracement level. The likey path from here is 1. rejection or 2. a SFP before a reversal into a downtrend. Read more on this below.

Fed Rate Hikes & Stockmarket Price Action

The recent ascent of the S&P 500 beyond the 4200 level elicits a sense of jubilation in the stock market.

However, let us not underestimate the challenge that lies ahead at 4300.

Throughout this year, the index has demonstrated a steady climb of approximately 12% to reach 4284 as of Tuesday's close.

Yet, it encountered multiple obstacles before successfully surpassing the crucial threshold of 4200.

In fact, it took around 15 attempts since last year to regain its position above that significant level.

The index last reached this mark in August 2022 during a summer rally that ultimately lost momentum when the Fed reminded the market of the necessity for continued aggressive rate increases.

Since then, inflation rates have nearly halved from their peak in 2022, while real gross domestic product growth has decelerated. Investors anticipate an economy stabilizing as the Fed prepares to apply the brakes on further rate increases.

However, reaching these prices should theoretically remain a formidable challenge.

With the conclusion of Fed rate hikes on the horizon, the question arises as to what extent the economy will decelerate from this point onward.

From a technical perspective, the S&P 500 currently lacks a substantial number of buyers, as the economy has yet to display signs of a definitive turnaround.

When the index last reached 4300 in August, buyers were scarce, and the situation may not differ significantly this time.

The faster these burdensome economic headwinds can dissipate, the sooner the market can reclaim these levels, although the economic headwinds are not seeming to dissipate any time soon.

One issue at hand is that the impact of tightening monetary policy on the economy typically experiences a delay, meaning the United States has not yet fully felt the consequences of higher interest rates.

Furthermore, recent turmoil in the banking sector is likely to dampen lending and spending.

Surveys conducted among banks indicate their intentions to curtail lending to a degree historically associated with a more substantial year-over-year decline in corporate profits than current analyst forecasts suggest.

Of course, the market does not always require groundbreaking catalysts to propel it beyond key levels (as we have certainly witnessed in the last few months).

To inspire further upward momentum, the market requires consistent evidence that the economy can effectively navigate the challenges posed by interest rate hikes.

As of today, I see much more downside potential than upside potential. Rate hikes, lack of buyers, retail prices skyrocketing, and then dumping in all the wrong ways. It doesn’t look particularly ‘pretty’ to be frank.