Published On - June 15, 2023
SEC Showdown: Striking Down Binance and Coinbase while UK Emerges as Blockchain Sanctuary
The SEC is keeping itself busy, this time they dealt sweeping blows to Binance, Coinbase and a number of tokens. Although there has been good news to come out of the UK with a16z deciding to open their first office outside the US in the UK.
The SEC doesn’t like CEX(s)
On the 5th June Binance was levied with 13 charges, including operating unregistered exchanges, broker-dealers, and clearing agencies. Also misrepresenting trading controls and oversight on the Binance.US exchange.
Then just one day later, Coinbase was charged with being an Unregistered Securities Exchange, Broker, and Clearing Agency.
In federal court documents, the SEC also labelled a number of leading tokens as securities including SOL, ADA and MATIC in their complaints against the exchanges ( the total number of tokens now stands at 68).
Predictably these named tokens took a tumbling and the crypto market more broadly tumbled. However, more importantly, it further hampered the reputation of blockchain and web3 technology in the U.S.
It's understandable Binance is being targeted in this attack — given their questionable adherence to regulation over the years and a lack of jurisdictional alignment for their business, but Coinbase is surprising.
Coinbase's IPO in 2021 was approved by the SEC, and they have repeatedly tried to register with the SEC as a securities exchange.
Back in April, Coinbase sued the SEC to compel them to respond to a rule-making petition the company submitted last year focused on how securities’ laws apply to cryptocurrency.
The SEC's unwillingness to assist Coinbase in its goal of legitimising cryptocurrencies in the U.S. demonstrates just how much of an uphill battle they face.
The crypto community are rallying around them, as Coinbase is positioning itself as the white knight in this battle with the SEC.
While this position by the SEC against Coinbase does appear strange, although if one takes onboard the market events that took place since Coinbase's IPO — the collapse of Terra UST, Celsius and FTX, perhaps Gary Gensler believes he's protecting investors.
Still, tarring Coinbase with the same brush as Binance does seem like the actions of an organisation which is completely anti-crypto, which leaves many people and organisations in the US continuing to despair at the SEC's actions.
It's not just crypto
It's not just the cryptocurrency industry that is affected by these actions. Legislative action of this scale results in U.S. institutions becoming even more cautious about touching blockchain technology.
If you held any of the so-called security tokens on your balance sheet, the SEC's actions will likely compel you to sell them. Robinhood removed SOL, MATIC and ADA from their platform for their users due to the SEC actions. I'm sure many institutions would have taken a similarly conservative line.
In addition, organisations looking to work with public blockchain networks will likely be thinking carefully if now is a good time to do this. In all likelihood, any initiatives are likely to be put on hold until a clearer regulatory position is in place.
Web3 UK
(Un)fortunately depending on where you are located, the major damage is curtailed to the US market. The UK has had a significant boost this week with leading VC Andreessen Horowitz announcing that they are to open their first office outside of the US.
Chris Dixon, founder of a16z crypto called out a number of reasons why the UK regulators are approaching blockchain and digital asset regulation in a sensible manner:
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Working constructively with industry to identify the unique attributes of blockchain technology and how those attributes shape the risk profile of decentralized services vs. centralized services.
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Laying the foundation for future applications of blockchain technology.
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Putting forth an innovative sandbox approach to regulation.
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Focusing on an outcomes-based approach.
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All the while continuing to keep consumer protection front-and-center of any regulation.
Our prime minister is completely on board with this too.
Unlike in the US, legislation toward crypto and public blockchain technologies is progressing in Europe and the UK. The MiCA framework has come into force, and there are numerous other positive initiatives such as regulatory sandboxes by the FCA and the EU's Blockchain Services Infrastructure.
In addition, there is plenty of activity in AI with companies such as Google's DeepMind headquartered in London. A16z no doubt still has plenty of capital to deploy, — their fourth crypto fund was only announced a year ago which has $4.5B at its disposal.
It's clear that a16z sees Europe as a significant opportunity for their firm. They are big believers in the promise of web3 technologies and their transformative potential and also know that it's going to take time for businesses and society to find the opportunities that allow it to fulfil this.
If the US regulators continue to refuse to embrace the technology, we'll likely see more and more of the talent and opportunities shifting elsewhere.
A16z are just some of the more prominent voices in the tech industry who see web3 as a missed opportunity in the US, and the longer that it is attacked, the harder it’s going to be for it to play catchup.
The crypto markets may be reeling from the attacks last week by the SEC, but this will be just another footnote in the path to broader adoption of web3. The first iteration of the web did face its own challenges, and while web3 may make new types of internet native currencies possible, its potential does not end there.
It’s a shame to see regulation creating so many headaches for the many companies trying to operate out of the US, but fortunately, there are other developed markets that are proving to be far more friendly, as a16z's announcement demonstrates.
I have confidence that Coinbase will manage to pull through with this latest challenge — they always strive to do things above board. In the case of Binance it's less clear. But none of this impacts the permissionless and decentralised networks powering web3 to keep running, which is why it’s such an important technology to keep developing.
