The road to hell is paved with good regulations. On the road to regulation, exchanges, and the crypto ecosystem as a whole, are advancing at a snail’s pace in the United States. And there’s still a long way to go before a framework is established that we hope will be fair and measured. For the time being, at least, this is not the path taken by the US regulator. Visit SEC (Securities Exchange Commission) and his boss Gary Gensler fight body and soul to silence innovation. And exchanges are at the forefront of this bitter struggle. Analysis.
Binance and Coinbase, prisoners freed by the Ripple ruling?
Regulatory bludgeoning hits exchanges
Gary Gensler’s love affair with crypto exchanges didn’t last long. There was a time, however, when Gensler thought rather highly of these digital coins, as he taught blockchain at MIT. It seems that this relationship quickly turned stormy, especially since he took over as SEC boss. Hostilities began a long time ago, but sanctions have been stepped up since the collapse of the FTX exchange. However, this regulatory war took a new turn at the beginning of June 2023.
Indeed, the SEC pulled out its regulatory bazooka and went after market leader Binance and its CEO, Changpeng Zhao. The regulator charged the exchange with no less than 13 charges. Gensler then announced that 61 cryptocurrencies could be classified as securities (or securities in English). In other words, shares or financial securities. The SEC is accusing the exchanges of failing to register these cryptos with the SEC before offering them to investors.
And because the SEC doesn’t do things by halves, it also attacked Coinbase in the process. Until then, Coinbase had been working closely with the regulator, complying with their every demand. A incomprehensible turnaround for his boss, Brian Armstrong.
SEC maintains regulatory fog with smoke grenades
So cryptos are stocks? Well, not exactly. In fact, in the USA, there are no no law that qualifies clearly the legal status of cryptos. But then why is the SEC blaming crypto exchanges in this case? Precisely, the regulator is playing on this vagueness to attack crypto exchanges and companies. As a result, the SEC is pocketing billions in fines and penalties from exchanges that prefer to pay the hefty bill rather than engage in years of litigation. And that’s exactly what the SEC is accused of doing.
In May, through the intermediary of the court, the Coinbase exchange summoned Gary Gensler to give cryptocurrencies a clear status. So that crypto companies could finally position themselves accordingly. Except that the regulator refused to respond to this request. The armed wing of the US government has once again refused to respond, thus maintaining the legal uncertainty surrounding the status of cryptos.
A godsend for Gary Gensler, who recently asked for a budget extension to members of Congress to continue the fight against the crypto « Wild West », which he considers to be lawless. Until the status of cryptos is determined, Gensler acts as if these assets are under his authority. His greatest « fear » would be that cryptos would not qualify as financial securities and escape his control. And that’s exactly what happened with the recent court ruling in the case between the SEC and Ripple.
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The Ripple ruling: a deliverance for exchanges?
It was a thunderclap in the crypto sphere in early July. Judge Torres ruled that the token XRPissued by Ripple was not a security. At least, not when purchased via an exchange. This was the outcome of a lawsuit that has been going on since the end of 2020, costing Ripple hundreds of millions of dollars. It was also a defeat for Gary Gensler and his thesis that all cryptocurrenciesexcept possibly bitcoin, would be financial securities.
Indeed, if the XRP token, issued by a particularly centralized organization, is not a security, then very few cryptocurrencies actually are. And Bitcoin and Ethereum, particularly decentralized blockchains, have no chance of ever qualifying as such.
But more importantly, since a cryptocurrency bought on an exchange is a priori not considered a financial security, then the SEC would in fact have no authority over Binance and Coinbase. And in that case, its multiple attacks and cascading lawsuits would fall by the wayside. What deliver the crypto ecosystem from this weight that weighs heavily on their shoulders.
The SEC can still appeal the ruling, but for JP Morgan analysts, this first decision sounds like a victory for tradingand Coinbase in particular.
SEC maintains cannon fire on crypto exchanges
Multiple lawsuits underway and just as many twists and turns to come
Let’s not be too hasty, however. Despite the decision in the Ripple versus SEC case, the SEC’s ongoing attacks on exchanges are still ongoing. So much so that several US states have ordered Coinbase to halt its crypto staking services.. In fact, the exchange was forced to comply with these requirements in 4 states: California, New Jersey, South Carolina and Wisconsin.
Moreover, it is not impossible that in the course of future trials, certain judges will contradict Judge Torres’ ruling.
Attacked by The Blockchain Association over decisions deemed anything but objective, the « tyrant » Gensler defends himself. As far as he’s concerned, he’s simply following the law. The very same « laws » he plays on to keep things vague.
NASDAQ halts its conquest of cryptos
Remember, back in March, NASDAQ announced it was preparing to launch a crypto custody service. A U-turn later, the situation is suddenly not the same. Influenced or not by the SEC’s fight, Nasdaq has finally abandoned its plans.
Saving Private Brian
In an attempt to unblock the situation, Coinbase’s boss goes to the front. This week, Brian Armstrong met with Democratic members of the House of Representatives. to make his point. The main theme will obviously be this cursed legislation, so complex to define. But the American manager is also expected to tackle the subjects of taxation, security and privacy.
Bitcoin ETFs: will the truce come through institutional investors?
Spot Bitcoin ETFs, the key to victory for crypto exchanges?
And there’s no one more legitimate than Coinbase to lead these discussions. Indeed, the exchange has been chosen by America’s largest institutional investors as a partner for their future crypto activities. Indeed, on the initiative of BlackRock, A flurry of requests for Bitcoin Spot ETFs flooded into the crypto sphere in June. If these applications are accepted by the SEC, it will probably open the door to unprecedented capital inflows. But above all, it will be a legitimization of the crypto sector as an investment field in its own right, and therefore a place in traditional finance. A path that will undoubtedly lead straight to large-scale democratization.
However, there’s no guarantee that these requests will be accepted, even if they come from the most eminent investment funds. Fidelity, VanEck, WisdomTree, Invesco and Valkyrie are just some of the investment funds to have applied for ETFs. following in BlackRock’s footsteps. And their partner in the custody of these cryptos is none other than Coinbase.
In this respect, the judge’s decision in the Ripple v. SEC case could weigh in the balance. Indeed, how can you refuse a ETF Spot Bitcoin if the latter is not a security and if the SEC has no authority over exchanges and therefore Coinbase? However, there’s no guarantee that it will be that simple. Gary Gensler has 45 days from the date of the application to decide. And he can postpone his decision for up to 240 days. If he decides to run out the clock, then we potentially won’t have a conclusion until March 2024.
The democratization of cryptos: still a minefield
According to billionaire Mike Novogratzfor a new bitcoin bull run to be triggered, it is necessary to 4 very specific conditions must be met :
- Federal Reserve to pause on key rate hike;
- Ripple must win its case against the SEC;
- Spot Bitcoin ETF application to be accepted;
- Binance must reach agreement with US authorities.
The first two points have come true. Or at least, for the rate hike, is on the way to doing so. Indeed, after pausing its rate hike last June, the Fed is likely to raise them only once or twice more, at most, according to current predictions.
Ripple won its case, barring an SEC appeal of the decision. And ETF applications have been flooding in, backed by the most powerful player in traditional finance: BlackRock. So all that’s left is to keep our fingers crossed for Binance. The company is currently in difficulty. Chased out of many countries, it recently saw itself forced to make mass redundancies its employees.
The exchanges’ battle against American regulation is far from won. And as long as the issue remains unresolved, it’s hard to see true adoption spreading across the population. However, if the West is reluctant to embrace crypto technology, Asia is the place to look. That’s right, Eastern countries are much less suspicious, and on the contrary encourageadoption of this new technology. Will America be left behind by Asia, just as France was left behind in 2000, too attached to its Minitel? We’ll have the answer in a few years’ time, but there’s still a long way to go before acceptance.
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