It seems like just yesterday that cryptocurrency was being hyped as the next big thing in expensive Super Bowl ads featuring big-name celebrities. The vibe is markedly different this week after the Securities and Exchange Commission sued two of the biggest crypto exchanges, alleging they violated securities law.
The SEC’s charges against Binance and Coinbase vary in scale and scope, but both sets result from increased regulatory scrutiny toward just what products these exchanges sell to consumers. That has been a major question mark, one that has left the industry begging for clarity from the SEC and Congress about how the government views the “tokens” trade, which has produced billions in transaction fees for these major markets. Now they have their answer — and it’s not one that they’re going to like.
According to the SEC’s complaints, both Coinbase and Binance allegedly ignored their need to register with the SEC as exchanges, brokerages and clearing agencies — functions that are usually performed by three separate companies. Coinbase, which is U.S.-based, is further accused of selling at least 13 crypto assets on its market that count as securities. Binance and its founder, Changpeng Zhao, are meanwhile also charged with misusing customers’ funds by commingling them with the company’s finances and falsely portraying Binance’s U.S. platform as an entirely separate platform “as part of an elaborate scheme to evade U.S. federal securities laws.” (Both companies have denied the allegations.)
At the heart of the lawsuits — and the crypto industry’s pushback — is an unanswered question: “Is a token a security or a commodity?” The former includes “investment contracts” like stocks and bonds, in which someone invests money in a venture and expects to see profits as a result. Commodities, on the other hand, are usually physical things that can be bought on exchanges in bulk — like oil, corn or wheat — before they’re…
Read the full article here