The U.S. took a major step backward from being a safe harbor for cryptocurrency and cryptocurrency trading platforms this week with the SEC launching two major lawsuits against Coinbase and Binance. The lawsuits attack the trading companies for their operations despite their ongoing efforts to establish legitimacy and comply with the SEC’s unclear demands. While this has certainly taken a toll on the market in the short-term, it seems unlikely that the artificial pressure from the SEC can continue to suppress crypto for long. These lawsuits come off as a desperate shot in the dark, hoping perhaps that it will spur Congress or the courts to step in and provide the clarity the SEC has so far refused to provide.
Fortunately for crypto enthusiasts, blockchains are not tied to the whims of any one country. In fact that’s one of the biggest selling points of a decentralized financial system, and in some respect it’s illuminating to see the United States trying (and failing) to tank crypto. Many blame the lack of regulatory clarity and chaotic actions of the SEC for the reason the crypto market has cooled this year, and that has some waiting patiently for another bull run once the artificial dampening loses its grip. One thing that is clear, though, is the U.S. is only hurting itself, and its own economy, with its current approach to crypto. The country is being left in the dust as the rest of the world moves forward with building out the regulatory infrastructure necessary for a crypto world.
While much of the world has come to terms with cryptocurrency, the U.S. seems to still be living in the past, treating crypto the same as it always has. This is far from the first time that federal bureaus have chosen to lead with enforcement rather than establishing a protocol for cryptocurrency trading operations. In fact, it’s part of an unsettling trend for the year, with multiple lawsuits and warnings filed against crypto-oriented companies operating in the U.S. in the past few months alone.
In Coinbase’s case, the warnings and lawsuits are coming despite the company being granted full operational approval from the SEC in 2021. While the SEC has since notified Coinbase about their concerns that the company is trading securities unlawfully, they have provided no method for Coinbase to rectify the SEC’s concerns, the company responds. “Tell us the rules and we will follow them,” wrote Paul Grewal, Chief Legal Officer of Coinbase in a statement in March. “Give us an actual path to register, and we will register the parts of our business that need registering.”
Responding to the June 7th lawsuit, which alleges that Coinbase is trading at least 13 coins that could be considered securities, co-founder and CEO Brian Armstrong tweeted, “Instead of publishing a clear rule book, the SEC has taken a regulation by enforcement approach that is harming America. So if we need to avail ourselves of the courts to get clarity, so be it.”
While Coinbase has the financial and legal muscle to represent itself in court – and clearly welcomes the opportunity to some extent, as it may at least lead to clearer rules of operations down the road – the SEC’s actions are enough to overwhelm smaller companies, effectively strangling the market.
Consider the case of Ripple, whose XRP token was targeted as an alleged security by the SEC two years ago. The drawn out battle has been draining the reserves of the company without penalty to the federal agency. “I don’t think that this SEC under this leadership necessarily cares whether they win or lose in the courts,” said Ripple’s chief legal officer Stuart Alderoty. “I think what they are engaging in is a coordinated campaign to essentially destroy the crypto economy in the United States.”
It’s not an exaggeration. Coinbase said previously that it would consider moving its headquarters out of the U.S. altogether. While cryptocurrency trading in the U.S. amounts to 10% of the world’s total, according to Bernstein, it is poised to shrink unless Congress can pass regulations that will stabilize the industry for investors.
It’s a stark difference from other countries with established regulations, who clearly see the value in establishing clear rules of operation for the future of finance. Just this past April, the EU passed major legislation on the regulation of cryptocurrency in the form of MiCA.
And it’s an even starker difference still from El Salvador, where bitcoin was announced as the country’s legal tender in 2021. Apart from purchasing a bitcoin every single day, El Salvador paid off a $800 million loan recently using its bitcoin gains – both clear indicators that the country is hedging its bets on the future-proof coin.
El Salvador’s next move is to harness the power of volcanoes to mine bitcoins in the world’s largest planned crypto mining operation.
With other countries leaping ahead in their support of cryptocurrency, U.S. lawmakers are rightfully concerned that the country has fallen and will be falling further behind unless action is taken soon. A Republican-led coalition of lawmakers sent a letter to the FRC demanding answers in March demanding answers for undue pressures against the cryptocurrency market, and with the recent lawsuits, they’re not backing down in their complaints.
“Real consumer protection requires creating a robust legal framework that exchanges can comply with, not pushing the industry offshore into the shadows,” tweeted Senator Cynthia Lummis (R-WY).
Both branches of Congress have bills in consideration that would help to establish much-needed regulations for the crypto market in the U.S. Of note, “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem” will be discussed by a House committee on June 13. How quickly committee hearings can progress to legislation may be the key determining factor in how well the rapidly-evolving crypto market can establish itself in the U.S. in the near future.