The cases brought by the Securities and Exchange Commission (SEC) against Binance and Coinbase earlier this week instigated steep price declines in crypto prices and a war of words between regulators and the industry’s biggest players. It makes for great drama and news cycles.
But will it make a ‘consequential‘ difference to the ecosystem? Not likely. There are three reasons for this.
An Action Too Late
First, the SEC’s action has occurred too late. Crypto’s profit-taking and shenanigans have been going on for some time and are nearing their end. Consider the agency’s targeting of Coinbase’s staking-as-a-service program. Such services enable investors to earn yield in exchange for depositing their tokens at the exchange. The SEC says it is a securities offering. Coinbase says it isn’t. [For what its worth, the crypto exchange has covered its tracks well and it will be difficult for the agency to make a watertight case in court].
But that isn’t the biggest problem here. It is that the agency is targeting the wrong players in its bid to clean up crypto. There are more obvious cases, like Lido’s Ethereum staking program for instance, where the SEC can easily prove its case for staking as a securities offering.
Even if it does prevail against Coinbase, the SEC’s lawsuit is late. The crypto exchange was among the first entities to enable withdrawals of ether from its platform after the Shapella upgrade, meaning most investors on its platform may have already withdrawn their holdings.
Binance.US Shutdown? No Problem
A possible second consequence of the SEC’s actions is that Binance’s US operations close down. That is not such a big loss . Binance.US accounted for just eight percent of US trading volumes in the last month, according to research firm Kaiko.
The agency has asked a court to freeze assets for the exchange but traders and Binance itself are already looking beyond U.S. cryptocurrency markets. In any case, the exchange might find it difficult to court retail traders in the U.S. after colorful tales about the actions and self-incriminating statements made by them in the SEC lawsuit.
Regulatory Clarity? Not So Soon
The third reason why the SEC’s actions do not amount to much is that the regulatory clarity long sought by cryptocurrency businesses will not emerge from the current crop of cases. That is the case especially in the agency’s face-off between Coinbase, which is demanding clarity.
But it is not the SEC’s job to craft legislation for an asset class that claims to be innovative. While the lawsuits establish an urgency to make new rules, Congress is in no hurry.
Things are just getting started on that front. And, given the fractiousness and bickering that has characterized most political negotiations lately, it is unlikely that an agreement will be reached any time soon.
It is true that there was some volatility in token prices after the SEC filed its lawsuits. But that is par for the course in crypto markets. When the news cycle reaches a natural conclusion, crypto and its chief antagonizing agency might find themselves back to where they were at the beginning of this week, before the cases were filed.