The US Securities and Exchange Commission’s lawsuit against crypto exchange Binance and CEO Changpeng Zhao (CZ) is bringing new uncertainty to an industry struggling to maintain mainstream relevance.
SEC is suing Binance
The SEC accused Binance Holdings Ltd. and CZ of mishandling clients’ funds, misleading investors and regulators and violating securities regulations. The move adds to regulatory pressure on the largest crypto trading platform. It is also another black eye for crypto after a 2022 defeat that contributed to the demise of rival FTX. This crypto platform went bankrupt amid a spate of fraud allegations.
The market faces a tough task to restore confidence. Meanwhile, investors are already turning to themes like artificial intelligence stocks. The total value of digital coins has dropped to $1.1 trillion. In 2021, this will exceed $3 trillion, as massive stimulus in the pandemic era boosted tokens like Bitcoin.
Jane Street Group, Jump Trading and other major trading firms have pulled out of crypto in the US. The reason for this is the stricter supervision of the regulations. The resulting decrease in liquidity can be an obstacle for investors. It is becoming more difficult to move in and out of investments in digital assets.
“The industry will look very different in a year from now”
“The industry will look very different in a year from now,” Markus Thielen, head of research at Matrixport, wrote in a note. To this he added the following:
Trading volumes are likely to fall further and put pressure on market makers’ revenue forecasts. Crypto in the US will continue to experience a nuclear winter.
The SEC listed 12 coins as assets under its purview in the complaint. Thus, the list of tokens that are considered unregistered securities is now expanding to over $115 billion worth of crypto. This means that strict rules must apply. This could mean that the tokens could be more difficult to trade if exchanges are more reluctant to include them.
Digital asset prices saw a drop on Tuesday as a result of the lawsuit. An index of the top 100 coins is down about 4% since the complaint was filed on Monday. Bitcoin, the largest token, has dropped closer to the USD 25,000 level.
Net outflow from the Binance exchange reached $702 million on Monday. This is the highest level since February, according to a Dune Analytics dashboard.
Binance called the SEC’s action “disappointing” and said it had negotiated with the agency in good faith to resolve the matter.
“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, much less on an emergency basis.” This is how the company responded.
We intend to vigorously defend our platform.
The inevitable has happened
For some crypto experts, the industry is just following an expected boom and bust cycle. They point to a 56% increase in Bitcoin this year as evidence that the recovery is underway.
Noelle Acheson, author of the Crypto Is Macro Now newsletter, said:
As late as March, SEC lawyers were openly stating that Binance was running an unregistered stock exchange, so we knew this day would come. To some extent, it’s a relief that the inevitable has happened.
Outside the US, locations such as Hong Kong and Dubai are trying to bring crypto investments to justice. The European Union approved the most comprehensive rules for digital assets in April.
That may give crypto companies friendlier places to try and recover from last year’s crash. “The lack of clarity in US regulations will push crypto into other jurisdictions,” said Cici Lu, founder of blockchain advisor Venn Link Partners.