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The SEC’s Approval of Spot Ethereum ETFs: Why It Matters

The SEC’s Approval of Spot Ethereum ETFs: Why It Matters

On May 23, 2024, the United States Securities and Exchange Commission (SEC) approved the first spot Ethereum (ETH) exchange-traded funds (ETFs), a landmark decision that has sent ripples throughout the financial and cryptocurrencies worlds.

This development marks a significant milestone not just for Ethereum but for the broader cryptocurrency market, as it opens the floodgates for institutional investors to inject billions into the space.

I will comment on the implications of this approval, exploring its potential impact on Ethereum and the wider financial ecosystem, and consider the broader regulatory context and market dynamics.

Key Takeaways

  • The SEC’s approval of spot Ethereum ETFs marks a significant step towards the acceptance of cryptocurrencies within traditional financial markets.
  • The decision opens the door for institutional investors, such as pension funds and endowments, to invest in Ethereum, potentially injecting billions into the cryptocurrency market and driving significant price appreciation.
  • Ethereum’s shift to Proof of Stake and its expanding ecosystem, including DeFi and NFTs, positions it as a robust platform, further enhanced by the anticipated influx of institutional capital.
  • However, the SEC’s approval invites increased scrutiny and potential centralization, which could affect the decentralized nature of the Ethereum network.

The Significance of Spot Ether ETFs

The approval of spot Ether ETFs by the SEC is monumental for several reasons. Firstly, it signifies a growing acceptance and legitimization of cryptocurrencies within traditional financial markets. Unlike futures-based ETFs, which derive their value from derivative contracts, spot ETFs are directly backed by the underlying asset—in this case, Ether.

This means that investors in these ETFs are exposed to the actual price movements of Ether, providing a more straightforward and perhaps less speculative investment vehicle.

For institutional investors, the availability of spot Ether ETFs eliminates many of the barriers to entry that have historically impeded large-scale investment in cryptocurrencies. Regulatory uncertainty, custodial challenges, and concerns about market manipulation have all been significant deterrents.

With the SEC’s approval, these concerns are somewhat alleviated, paving the way for pension funds, endowments, and other large institutional players to allocate capital to Ether.

Market Reactions and Predictions

The immediate market reaction to the SEC’s decision was mixed, with both Bitcoin and Ether experiencing price declines shortly after the announcement. This counterintuitive response can be attributed to several factors, including profit-taking by investors who had anticipated the approval and market adjustments to the new influx of institutional interest.

However, in the medium to long term, the introduction of spot Ether ETFs is expected to have a profoundly positive impact on Ethereum’s price and market capitalization. Historical data from the approval of Bitcoin ETFs suggests a similar trajectory.

When the first Bitcoin futures ETFs were approve, Bitcoin’s price surged to an all-time high shortly thereafter. While the current market dynamics are different, the precedent suggests that increased institutional participation could drive significant price appreciation for Ether.

Ethereum’s Technological and Ecosystem Developments

Ethereum, the second-largest cryptocurrency by market capitalization, has undergone significant technological advancements in recent years. The transition from Proof of Work (PoW) to Proof of Stake (PoS) with the Ethereum 2.0 upgrade was a critical milestone. This upgrade drastically reduced Ethereum’s energy consumption by over 99%, addressing one of the major criticisms levied against cryptocurrencies.

Ethereum’s robust ecosystem, which includes decentralized finance (DeFi) platforms, non-fungible tokens (NFTs), and a multitude of decentralized applications (dApps) continues to expand. The total value locked (TVL) in DeFi protocols on Ethereum surpassed $115 billion, underscoring the platform’s growing utility and adoption.

Institutional Investment: A Double-Edged Sword

While the influx of institutional capital is generally seen as a positive development for Ethereum, it is not without potential drawbacks. One concern is the increased centralization of ETH holdings. As institutional investors accumulate large positions, the risk of centralization grows, potentially undermining the decentralized ethos of the Ethereum network.

Additionally, the involvement of large financial institutions could lead to increased regulatory scrutiny. While the SEC’s approval of spot Ether ETFs is a step toward regulatory clarity, it also opens the door for more stringent oversight. This could manifest in various forms, including more rigorous Know Your Customer (KYC) and anti-money laundering (AML) requirements for exchanges and custodians.

The Broader Regulatory Landscape

The SEC’s decision comes at a time when global regulatory attitudes toward cryptocurrencies are evolving. In the United States, the Biden administration has taken a more proactive approach to cryptocurrency regulation, focusing on consumer protection, financial stability, and national security. The approval of spot Ether ETFs aligns with this approach, providing a regulated investment vehicle that mitigates some of the risks associated with direct cryptocurrency ownership.

Internationally, the regulatory environment is similarly dynamic. The European Union’s Markets in Crypto-Assets (MiCA) regulation, set to come into effect in 2024, aims to create a comprehensive regulatory framework for digital assets.

In Asia, countries like Singapore, South Korea and Japan are also moving toward clearer regulatory guidelines, recognizing the growing importance of cryptocurrencies in the global financial system.

Economic Implications and Future Outlook

The approval of spot Ether ETFs could have far-reaching economic implications. For one, it is likely to catalyze further innovation and development within the Ethereum ecosystem. Increased capital inflows can fund new projects, enhance existing protocols, and attract more developers to the network. This virtuous cycle of investment and innovation could accelerate Ethereum’s growth and solidify its position as the leading smart contract platform.

Furthermore, the broader cryptocurrency market stands to benefit from the increased legitimacy and institutional adoption of Ether. Bitcoin, often seen as a gateway to the crypto market, could experience renewed interest as investors diversify their portfolios to include other major cryptocurrencies. This could lead to a more mature and stable market, characterized by reduced volatility and increased liquidity.

Perspectives on Potential Risks

Despite the optimistic outlook, it is crucial to acknowledge the potential risks associated with the SEC’s approval of spot Ether ETFs. Market volatility remains a significant concern, as the cryptocurrency market is still relatively nascent and susceptible to rapid price swings. Additionally, the speculative nature of the market means that prices can be influenced by factors that are difficult to predict or control.

There is also the risk of regulatory changes. While the current regulatory environment is favorable, future administrations or shifts in policy could introduce new challenges. For instance, stricter regulations on cryptocurrency exchanges or changes in tax policy could impact the attractiveness of Ether as an investment.

Maybe another question to look at is “Is staking allowed?” And there are other teething issues too if I want to dig further from a regulatory standpoint.

The Bottom Line

The SEC’s approval of the first spot Ether ETFs represents a transformative moment for Ethereum and the broader cryptocurrency market. By providing a regulated and accessible investment vehicle, this decision has the potential to unlock significant institutional capital, driving further growth and adoption of Ethereum. It is essential to remain cognizant of the associated risks and challenges, including market volatility, regulatory changes, and the potential for increased centralization.

As Ethereum continues to evolve and its ecosystem expands, new technological advancements, regulatory developments, and market dynamics will shape its future trajectory.

For investors, developers, and policymakers alike, the approval of spot Ether ETFs is a pivotal event that underscores the growing importance of cryptocurrencies in the global financial landscape. Whether this will ultimately lead to a more stable and mature market or introduce new complexities and risks remains to be seen.

However, one thing is clear: Ethereum’s journey is far from over, and the next chapter promises to be both exciting and transformative.

 

Source: https://www.techopedia.com/sec-approval-of-spot-ethereum-etfs-why-it-matters

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Binance vs SEC: Battle for Crypto Freedom or a Fight for Regulatory Compliance?

Binance vs SEC: Battle for Crypto Freedom or a Fight for Regulatory Compliance?

Binance, the world’s largest cryptocurrency exchange by trading volume, is facing a legal challenge from the U.S. Securities and Exchange Commission (SEC), which accused it of violating securities laws and defrauding investors.

Binance and its CEO, Changpeng Zhao, filed court papers seeking to dismiss the lawsuit, claiming that the SEC has no jurisdiction over their activities and that they have complied with all applicable laws. However, the SEC has not given up on its pursuit of Binance, and has recently requested access to Binance.US’s software and documents, which was denied by a U.S. court.

The outcome of this case could have significant implications for the future of the crypto industry and its regulation in the U.S. and beyond.

How the Case Unfurled

The SEC’s Allegations The SEC’s lawsuit against Binance, Binance.US, and Zhao was filed in June 2023, following a months-long investigation into the exchange’s operations. The SEC alleges that Binance and Zhao engaged in a series of securities law violations, including:

  • Operating unregistered national securities exchanges, broker-dealers and clearing agencies in the U.S. — without complying with the registration, reporting and record-keeping requirements of the federal securities laws.
  • Offering and selling unregistered securities to U.S. investors, including Binance’s own crypto assets such as BNB, BUSD, crypto-lending products and staking-as-a-service programs.
  • Misrepresenting the nature and extent of their activities in the U.S., and subverting their own controls to secretly allow high-value U.S. customers to trade on Binance.com, which is not authorized to operate in the U.S.
  • Misleading investors and regulators about the independence and oversight of Binance.US, which is allegedly controlled by Zhao and Binance behind the scenes.
  • Commingling investor funds with their own funds and diverting them to third parties owned by Zhao, such as Sigma Chain and Merit Peak Limited.
  • Engaging in manipulative trading practices that artificially inflated the trading volume and prices of crypto assets on Binance.US.

The SEC seeks injunctive relief, disgorgement of ill-gotten gains, civil penalties and permanent bans on Binance and Zhao from engaging in any securities-related activities in the U.S.

Binance’s Defense Binance and Zhao have denied the SEC’s allegations and have filed motions to dismiss the lawsuit. They argue that the SEC has no authority or jurisdiction over their activities, and they have complied with all applicable laws. They contend that:

  • The SEC has failed to provide any clear or consistent guidance on what constitutes a security or a securities-related activity in the crypto space, and has attempted to retroactively apply its vague and ambiguous rules to Binance and Zhao.
  • The SEC has failed to show that Binance or Zhao have any substantial contacts or connections with the U.S., or that they have targeted or solicited U.S. investors in any way.
  • The SEC has failed to prove that any of the crypto assets offered or sold by Binance or Zhao are securities under the federal securities laws, or that they have any characteristics or features of securities.
  • The SEC has failed to establish that Binance or Zhao have operated any unregistered national securities exchanges, broker-dealers, or clearing agencies in the U.S., or that they have performed any functions or services that require such registration.
  • The SEC has failed to demonstrate that Binance or Zhao have made any false or misleading statements or omissions to investors or regulators, or that they have engaged in any fraudulent or manipulative conduct.

Binance.US’s Response Binance.US, which is formally known as BAM Trading Services Inc., has also filed a motion to dismiss the charges against it.

It claims that it is a separate and independent entity from Binance and Zhao, and that it operates a fully compliant and regulated crypto trading platform in the U.S. It asserts that:

  • It has obtained a money services business license from FinCEN, a money transmitter license from NYSDFS, and a virtual currency license from NYDFS.
  • It has registered as a money services business with FinCEN
  • It has implemented robust anti-money laundering, know-your-customer, and cybersecurity policies and procedures, and has engaged independent auditors to verify its compliance.
  • It has obtained approval from the SEC to list and trade certain crypto assets that are deemed securities, such as Grayscale Bitcoin Trust and Grayscale Ethereum Trust.
  • It has cooperated fully with the SEC’s investigation and has provided all the requested information and documents, except for those that are protected by attorney-client privilege or trade secrets.

Binance.US argues that the SEC’s lawsuit is based on unfounded allegations and irrelevant evidence, and that it should be dismissed for lack of merit and jurisdiction.

The SEC’s Request for Inspection In a bid to bolster its case against Binance, the SEC has sought to inspect Binance.US’s software and documents, claiming that they are relevant and material to its investigation. The SEC asserts that:

  • Binance.US’s software and documents may reveal the extent and nature of Binance and Zhao’s involvement and control over Binance.US, as well as their access to Binance.US’s customer data and funds.
  • Binance.US’s software and documents may show how Binance.US’s platform operates, how it determines the eligibility and availability of crypto assets, how it executes trades and transfers, and how it handles customer complaints and disputes.
  • Binance.US’s software and documents may demonstrate whether Binance.US has complied with the federal securities laws and regulations, or whether it has engaged in any securities law violations or fraudulent conduct.

The SEC has requested access to Binance.US’s source code, user interface, application programming interface, database schema, data dictionary, technical specifications, user manuals, policies and procedures, contracts and agreements, correspondence and communications, financial statements, audit reports and other relevant records.

However, the SEC’s request for inspection was denied by a U.S. district court judge in New York. The judge ruled that:

  • The SEC’s request was overly broad, burdensome, and intrusive, as it sought to obtain virtually all of Binance.US’s software and documents without specifying their relevance or necessity.
  • The SEC’s request was premature, as it had not exhausted other less intrusive means of obtaining the information it sought, such as interrogatories, depositions, or subpoenas.
  • The SEC’s request was disproportionate to the needs of the case, as it would impose significant costs and risks on Binance.US, while providing little or no benefit to the SEC.
  • The SEC’s request was unjustified, as it had not shown any reasonable basis or probable cause to believe that Binance.US’s software and documents contained any evidence of securities law violations or fraudulent conduct.

The judge concluded that the SEC had failed to meet its burden of showing that its request for inspection was relevant, material, necessary, reasonable, or proportional to the issues in dispute. The judge also noted that granting the SEC’s request would violate Binance.US’s privacy rights and trade secrets protections.

Implications of SEC’s Ruling

The court’s denial of the SEC’s request for inspection is a significant setback for the SEC in its lawsuit against Binance. It indicates that the court is not convinced by the SEC’s arguments or evidence, and that it is not willing to grant the SEC unlimited access to Binance.US’s software and documents. It also suggests that the court is sympathetic to Binance.US’s defense and claims of compliance.

However, the court’s denial does not mean that the SEC’s lawsuit is over. The SEC may still pursue other means of obtaining information from Binance.US or other parties. The SEC may also appeal the court’s decision or file a revised request for inspection. The SEC may also present other arguments or evidence to support its allegations against Binance.

The outcome of this case could have significant implications for the future of the crypto industry and its regulation in the U.S. and beyond. If the SEC prevails in its lawsuit against Binance, it could set a precedent for cracking down on other crypto platforms that operate in or target U.S. investors without complying with U.S. securities laws. It could also deter innovation and competition in the crypto space by imposing stringent requirements and restrictions on crypto platforms.

On the other hand, if Binance succeeds in dismissing the lawsuit or reaching a settlement with the SEC, it could signal a victory for crypto freedom and innovation. It could also encourage more dialogue and cooperation between crypto platforms and regulators to foster a more conducive and compliant environment for crypto development.

In any case, this case is likely to shape the future of crypto regulation in the U.S. and beyond. It will test the limits of the SEC’s authority and jurisdiction over crypto assets and activities. It will also challenge the definitions and classifications of crypto assets as securities or non-securities. It will also highlight the need for clear and consistent guidance and rules for crypto platforms and investors.

This case is not only a legal battle between Binance and the SEC. It is also a fight for crypto freedom or a fight for regulatory compliance. It is a fight that will have profound implications for the crypto industry and society.

 

Source: https://mpost.io/binance-vs-sec-battle-for-crypto-freedom-or-a-fight-for-regulatory-compliance/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

SEC Lawsuit Heats Up the War Between Binance and the US

SEC Lawsuit Heats Up the War Between Binance and the US

The lawsuit against Binance and its CEO yesterday (Monday) has brought havoc to the cryptocurrency industry. The market prices of Bitcoin and also the publicly listed shares of crypto companies plummeted significantly. The civil changes brought by the SEC are very serious, but the exchange might face further action.

SEC’s Lawsuit against Binance

The SEC brought a total of 13 charges against Binance, its two affiliates, and Founder CEO, Changping Zhao, which includes operating illegal trading platforms, offering unregistered crypto asset securities, and commingling customers’ funds.

However, a part of the industry is not surprised by the actions of the US regulator against the largest global crypto exchange, a title that Binance has been holding for a while now.

“I think this was to be expected, and anyone that has been in the financial industry for years should have seen this coming,” Ilies Larbi, the Co-Founder and CEO at Ouinex, told Finance Magnates.

In an official response, Binance complained that the SEC abandoned negotiations with the exchange to reach a “settlement to resolve their investigations.” Earlier, the SEC settled with companies like BlockFi and Poloniex for hefty fines.

However, according to Anndy Lian, an expert and advisor on blockchain, Binance still has some options.

“In general, companies facing lawsuits from regulatory agencies such as the SEC have several options. They can choose to fight the lawsuit in court, which can be a lengthy and costly process. Alternatively, they can try to negotiate a settlement with the SEC, which may involve paying a fine and agreeing to certain conditions. Binance may also choose to cooperate with the SEC and provide information to help resolve the matter,” he told Finance Magnates.

“Zhao’s stand has always been cooperative. Being the leading crypto exchange, their next step means a lot to the whole industry.”

Are Criminal Charges on the Way?

“The charges are extremely serious, and the mere fact that the settlement route has been ignored by the SEC (despite Binance’s efforts) while requesting from the Department of Justice that Binance’s asset be frozen and repatriated is a testament to how serious the situation is,” Larbi added.

Additionally, the request for an asset freeze indicates that the SEC’s concerns against Binance’s operations are grave. FTX’s Sam Bankman-Fried also faces criminal and civil charges in the US. Both FTX and Binance allegedly solicited users’ funds, among other similar charges.

Like FTX, Zhao and Binance’s access to Binance.com and Binance.US gave them the opportunity to commingle customer assets or divert them to Sigma Chain, the market maker and trading firm said to be owned and controlled by Zhao. In addition, they allegedly merged ‘billions of dollars of investor assets’ and sent them to Merit Peak Limited, which is also owned by the Binance Founder. These funds were later subsequently transferred to a third party “apparently in connection with the purchase and sale of crypto assets,” the SEC added.

“The Commission respectfully requests that the Court order temporary and preliminary injunctive relief, including, but not limited to, asset freezes, a verified accounting, repatriation of assets, expedited discovery, preservation of documents and information, prohibition on the destruction of evidence, the appointment of a receiver, alternative service, and/or any other necessary equitable relief,” the lawsuit stated.

Earlier media reports revealed that the Department of Justice was investigating Binance’s failure to implement an anti-money laundering program. Moreover, the exchange faces US investigations for allowing services to Russians, thus breaching sanctions.

“While the SEC has filed a civil action, it is likely that criminal violations have been referred to the Department of Justice as it pertains to matters such as RICO violations, Russian Sanctions violations, fraud, etc,” said Larbi.

In a separate civil lawsuit against Binance, the US derivatives market regulator called the compliance measures of Binance a “sham.” The CFTC’s lawsuit against Binance is along the same lines as its securities market counterpart.

“US regulators are taking a more firm stance towards Binance and are working to enforce compliance with US securities laws,” Lian added. “On the other hand, when I spoke to my counterparts in US who are mainly professional investors, they are supportive of Binance and see them as a force that could challenge SEC and give people more choices to take control of their own money.”

More Incoming Regulatory Actions?

Binance operates on a global scale. While the exchange has obtained several regulatory licenses over the past couple of years, it has operated in many jurisdictions without permission for years.

Now, the SEC’s action might encourage other global regulators to take action against the exchange.

“Many regulators across the globe will look to the US for direction on this, and we are slowly seeing many regulators across the globe following this trend,” said Remonda Kirketerp-Møller, the Founder and CEO at Muinmos. “At the end of the day, it’s about investor protection, and the US does this very well.”

Recently, the Australian financial market regulator revoked the license of Binance Derivatives.

The Goal of Binance

Zhao, a Canadian national of Chinese origin, established Binance in 2017. In its early days, the exchange operated without a license, and Zhao publicly boasted that it had no headquarters.

On top of that, the lawsuit mentioned earlier internal statements from top Binance executives, including Zhao, indicating the goal of the exchange is to avoid regulations.

Zhao allegedly designed and implemented a multi-step plan to surreptitiously evade US laws. A Binance Chief Compliance Officer even admitted that: “we do not want [Binance].com to be regulated ever.”

In the early days of Binance, Zhao publicly boasted his ambitions to facilitate crypto trading with every fiat available globally. However, the US market has always been tricky with its stringent regulatory oversight, which led to the launch of its separate US affiliate.

The Binance CCO explained: “[o]n the surface we cannot be seen to have US users[,] but in reality, we should get them through other creative means.” Moreover, Zhao stated that the “goal” was “to reduce the losses to ourselves, and at the same time to make the US regulatory authorities not trouble us.”

BAM Trading officially operates Binance.US without Zhao in any of its executive roles. It is touted to be operationally independent of the global exchange, Binance.com. However, the reality is different.

The SEC found that Zhao and Binance were intimately involved in directing BAM Trading’s US business operations and providing and maintaining the crypto asset services of the US affiliate.

BAM Trading employees referred to the controls of Zhao and Binance on the company as “shackles” that prevented them from understanding and freely operating the US platform. A former CEO of BAM Trading even told Binance’s CFO that her “entire team feels like [it had] been duped into being a puppet.”

Indirectly, Zhao holds majority ownership of Binance.US, which operates in the US with money-transmitting licenses.

Zhao's ownership in Binance

“Whether Binance fights this in court or not is irrelevant at this stage,” Larbi added. “The consequences are going to be, at best, being banned from the USA with fines that mirror Binance’s size.”

“We are only starting to see the tip of the iceberg, and mid-term consequences could go as far as the closure of the Binance operations globally. At the very least extreme consolidation of their operations and reduction in size.”

Gold-i’s Tom Higgins believes the lawsuit will “end Binance US eventually but will not have as much impact on Binance globally.”

The Fall of a Mammoth?

Binance’s strategy worked for years as the exchange became the largest globally in terms of crypto trading volume. The peak of its dominance hit last February when it controlled 57.5 percent of the average monthly volume on the world’s crypto exchanges, according to CCData. However, by the end of April, it dropped to 43 percent.

Binance's market share

“Crypto, in general, started as a completely unregulated activity which led first movers such as Binance to onboard clients initially with barely a name and an email. That already set the scene for extreme risk exposure once regulations kicked in. Now the reality is that Binance has not been getting away with these violations. Investigations take time, and this one has been going on for over four years now,” Larbi said.

The Crypto Industry Is Taking the Heat

Though on the surface, the lawsuit is only against Binance, it directly or indirectly hinted at actions against other crypto projects.

One of the major allegations of the SEC against Binance and its US affiliate is for offering and selling unregistered tokens and stablecoin, BNB and BUSD, respectively, to US customers. However, the lawsuit categorized ten other cryptocurrencies as unregistered securities – Solana’s SOL, Cardano’s ADA, Polygon’s MATIC, Filecoin’s FIL, Cosmos’ ATOM, Sandbox’s SAND, Decentraland’s MANA, Algorand’s ALGO, Axie Infinity’s AXS and Coti’s COTI tokens.

With these new additions, the SEC is now categorizing 61 cryptocurrencies in total as unregistered securities. The regulator is already fighting a long-running legal battle with Ripple on the status of XRP.

The SEC’s lawsuit against Binance came after the exchange was hit with a Wells Notice seeking clarification for its alleged lapses. Another crypto exchange that was served with the Wells Notice is Coinbase.

“We observe that several of the details of the lawsuit that the commission filed against Binance echo those it previously filed against crypto exchanges Bittrex and Kraken, and we believe these cases, in aggregate, represent a preview of the action that is likely to be filed against COIN,” Berenberg’s analyst, Mark Palmer wrote in a note.

Furthermore, Coinbase admitted that it is expecting enforcement action following the Wells Notice. The American exchange is fighting a legal battle with the SEC over its regulatory decision-making processes.

The share price of Coinbase dropped 10 percent following the announcement of the lawsuit against Binance.

“Any large exchange that performs all of the trading functions in one place is in danger,” Higgins added. “The traditional finance world separates responsibilities like execution, prime broking, and custody for good reasons. Big crypto exchanges want to own it all, and this will not fly in the long term.”

The Market Reaction

The SEC’s formal allegations against Binance triggered its users to withdraw funds. According to Data from Nansen.ai, Binance and its US affiliate endured about $790 million in net outflows in the past 24 hours, which is the highest since mid-March.

However, Seoul-based crypto analytics firm CryptoQuant pointed out that the outflows remain within historical norms.

“The Crypto market is only now entering its regulated era,” Kirketerp-Møller added. “Crypto firms will have to adjust and “change their mindset,” if you like, from an industry operating at the peripherals of the financial sector to now occupying its main avenue, and as such also very much in the “regulators’ eye.” A similar process happened in recent years in CFDs; for example – we see a lot of online investment firms adopting our mPASS™ solution, which automatically classifies investors and performs cross-border suitability and appropriateness checks. In the past, only a handful of firms applied mPASS™, seeing it as a “luxury”; now it’s the standard and the only way to protect both investors and secure compliance of the institution.”

Itai Sadeh, the CEO of iFOR Fintech the technology arm of the iFOREX Group, said: “The complaint brought by the SEC against Binance, its controlling shareholder Changpeng Zhao and other companies under Zhao’s control, proves the importance of having well structured and strong compliance procedures and functions, which includes robust KYC procedures. US regulations are very strict on the ability of offshore brokers to accept US clients and regulators in the US are swift in enforcing such restrictions. Companies who are not licensed in the US should implement both technological and human measures in order to verify that US clients cannot access overseas trading platforms and that KYC processes are in place to detect and block any US client who manages to circumvent such restrictions.”

“If the SEC allegations that Binance has intentionally allowed US clients to onboard onto Binance’s unregulated platform are proven to be true, Binance and Zhao may face severe consequences.”

Source: https://www.financemagnates.com/cryptocurrency/sec-lawsuit-heats-up-the-war-between-binance-and-the-us/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j