After the Securities and Exchange Commission (SEC) this week sued Coinbase and Binance, two of the biggest cryptocurrency exchanges in the world, for allegedly breaking its laws, more U.S. crypto exchanges are expected to follow suit.

The SEC charged Coinbase on Tuesday with trading at least 13 cryptocurrencies that are securities and should have been registered, and it charged Binance, the largest cryptocurrency exchange in the world, on Monday with selling 12 cryptocurrencies without registering them as securities.

The SEC has now specifically designated a greater number of cryptocurrencies as securities as a result of the cases.

This begs the issue of whether other exchanges, like Kraken, Gemini, Crypto.com, and Okcoin, which have also permitted trading of those tokens by American investors, would be subject to regulatory action, according to business leaders. The tokens in question may be delisted by some exchanges.

“All U.S. exchanges should now be on notice that they may be subject to enforcement action if they permit, or have permitted, these tokens to be traded,” said Jason Allegrante, chief legal and compliance officer at Fireblocks, a digital asset infrastructure provider.

Bitstamp, a cryptocurrency exchange, said in a statement that it takes “all new regulatory developments very seriously” and is “currently reviewing the new information that has come out this week to determine what actions to take.”

Both Coinbase and Binance have vowed to tenaciously defend themselves in court and reject the SEC’s accusations. The SEC chose not to respond.

The SEC, led by Gary Gensler, has consistently pushed its authority over the cryptocurrency industry, stating that most tokens satisfy the definition of a security and should be subject to the same stringent disclosure requirements. Although crypto firms first operated in a legally ambiguous environment.

According to information from the SEC website and consultant Cornerstone Research, the organisation has filed over 130 lawsuits and settlements involving cryptocurrencies, and in several of those cases it has designated particular tokens as securities.

This week’s Coinbase and Binance lawsuits add other frequently traded tokens to that list, including as Solana, Cardano, and Polygon.

“We would not be surprised to see more lawsuits from the U.S. regulators, and possibly the Department of Justice, in the next few weeks,” said Scott Freeman, co-founder of JST Digital, a financial services firm focusing on digital assets.

A Justice Department official declined to comment.

Because many tokens are more related to commodities than to securities, cryptocurrency companies like Coinbase and Binance contest the SEC’s authority and have frequently urged regulators to establish clear rules rather than establishing their authority through enforcement proceedings.

“We do not list securities. For every asset we list, our teams conduct thorough risk and security evaluations which includes a comprehensive legal and compliance process. We will continue to closely monitor this case and others for precedential rulings,” a spokesperson for Kraken said.

A request for comment was not immediately answered by Gemini, Crypto.com, or Okcoin.

The judicial proceedings for the most recent lawsuits might last for years. For instance, an SEC lawsuit claiming that the XRP cryptocurrency from Ripple is a security is currently in court and has been for more than two years.

Executives said that regardless of the outcome of the lawsuits, the SEC is making it clear to the business community that it would not relent in its efforts. While large cryptocurrency companies can afford to fight the SEC, smaller businesses, like cryptocurrency exchange Beaxy, have gone bankrupt as a result of SEC enforcement proceedings.

“I don’t think that this SEC under this leadership necessarily cares whether they win or lose in the courts. I think what they are engaging in is a coordinated campaign to essentially destroy the crypto economy in the United States,” Stuart Alderoty, chief legal officer at Ripple, told the Piper Sandler Global Exchange & Fintech Conference in New York on Wednesday.

Investors would benefit from an industry shake-out, according to Gensler.

“I disagree with the notion … that crypto intermediary compliance isn’t possible,” Gensler said in a speech on Thursday, adding however that “it takes work.”

About 90% of cryptocurrency trading, according to experts at Bernstein, already takes place outside of the United States. Executives predicted that exchanges will keep growing into foreign areas with more benevolent rules.

For instance, Coinbase previously stated that it would think about relocating its worldwide headquarters outside of the United States.

“I would imagine that other firms spooked by the prevalent trend for regulation by enforcement will follow suit,” said Katharine Wooller, business unit director at Coincover, a provider of insurance for digital assets.

(Adapted from Reuters.com)

Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy