Key learning points
- The SEC is investigating Binance and every US cryptocurrency exchange, claimed a Forbes report citing an unnamed source from the office of Senator Lummis (R-Wy).
- The SEC has stepped up its efforts in recent weeks to regulate digital asset space, including an investigation on Coinbase for allegedly offering unregistered securities.
- The financial regulator faces a battle with the Commodity Futures Trading Commission as it attempts to establish itself as the foremost US regulator of the crypto market.
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The financial regulator has stepped up its oversight of the digital asset space in recent weeks.
US scholarships under investigation
Coinbase is not the only cryptocurrency exchange the SEC is keeping an eye on, according to an employee of the office of Senator Cynthia Lummis (R-Wy).
A Thursday report from Forbes citing an unnamed employee of Lummis’s office has claimed that US financial regulator Binance and every US cryptocurrency exchange is investigating. According to the source, the SEC wants to establish itself as the country’s top crypto regulator, while continuing its battle with the US Commodity Futures Trading Commission for oversight of the industry.
The CFTC has retained authority over “virtual currencies” since 2014, but in recent years the SEC has made it clear that it wants to keep the courts over the space. SEC Chairman Gary Gensler has warned multiple times that many crypto tokens could qualify as unregistered securities, and last week the agency gave its strongest hint yet that it wants to curtail the emerging market. In a lawsuit alleging that a former Coinbase employee and two of its employees were involved in insider trading, the SEC alleged that the exchange allows clients to trade “at least nine” unregistered securities.
SEC steps up crypto oversight
While Coinbase’s allegations of insider trading sent shockwaves through the industry, the SEC’s claim was also notable in that it has never previously targeted an exchange over its backed tokens. Then it turned out that the regulator Coinbase was investigating. Binance.US responded by removing one of the tokens mentioned, AMP.
The SEC’s anger hasn’t stopped with Coinbase. Since the filing of the insider trading, Gensler has officially stated that he sees no difference between cryptocurrency exchanges and traditional stock trading platforms, adding that there are “inherent conflicts of interest” with exchanges acting as market makers. The SEC has also charged 11 people behind Forsage in what they called a “crypto pyramid scheme” that cost investors $300 million.
While the SEC has recently stepped up its efforts to regulate the space for digital assets, the CFTC has also been given a potential route to establish more oversight on cryptocurrencies. This week, the Senate Agriculture Committee introduced the Digital Commodities Consumer Protection Act of 2022. If the new bill is passed, Bitcoin and Ethereum will be classified as commodities and the CFTC will have oversight of exchanges offering them for trading. With Bitcoin and Ethereum occupying the top two spots on the crypto leaderboard, that would include: the US division of Binance, Coinbase and any other major crypto exchange. The proposed legislation could theoretically still classify other tokens as securities and therefore fall within the purview of the SEC. However, the bill would have to go through Congress to take effect, meaning the clashes between CFTC and SEC could continue for some time to come.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.