Crypto chaos as the sector faces SEC crackdown

7 Jun 2023

Image: © Wit/

With a wave of new court cases threatening crypto exchanges and a drop in multiple cryptocurrency prices, the sector’s future remains as uncertain as ever.

The global crypto sector is facing increased regulatory pressure, as a US agency is taking aim at some of the biggest exchanges in the world.

The US Securities and Exchange Commission (SEC) sued Coinbase and Binance this week, claiming both crypto exchanges have acted unlawfully in the country. SEC chair Gary Gensler also claimed that Binance and its CEO engaged in “an extensive web of deception”.

As a result of these cases, the price of various cryptocurrencies dropped worldwide. Bitcoin and Ether, two of the biggest cryptocurrencies, saw their prices drop after the SEC took aim at Binance.

Multiple coins that are sold on Coinbase saw their prices drop by between 6pc and 9pc after the SEC took aim at the US crypto exchange, The Wall Street Journal reports.

The cases could have further impacts on the crypto sector depending on their outcome. A recent court filing shows the SEC is seeking to temporarily freeze all assets tied to Binance.US. Binance is also facing a civil enforcement action from the US Commodity Futures Trading Commission.

The US crypto crackdown

The legal actions against Binance and Coinbase are the latest developments in a long period of uncertainty in the US, with the SEC and the crypto sector clashing over current regulations. Concerns have been raised that the latest actions are part of a wider crackdown by the US agency.

Currently, it is illegal for US crypto exchanges to sell digital securities unless they register themselves as securities exchanges. The core element of the SEC’s case against Coinbase is the claim that the company is operating as an “unregistered” securities exchange.

Coinbase has argued that the US does not have a functioning market in digital asset securities due to “the lack of a clear and workable regulatory regime”. The company has been trying to get the SEC to sign a petition around adopting rules around securities regulation and to “identify which digital assets are securities”.

Coinbase said the SEC’s latest legal action is a “misunderstanding” of the crypto sector and “another example of the need for comprehensive crypto regulation in the US”.

“Tell us the rules and we will follow them,” Coinbase said. “Give us an actual path to register, and we will register the parts of our business that need registering.”

“In the meantime, the US cannot afford for regulators to continue to threaten the good actors in the crypto industry for doing the same legal and compliant things they’ve always done.”

In April, the SEC sued Bittrex for allegedly operating as an “unregistered national securities exchange, broker and clearing agency”, which is similar to its charges against Coinbase.

Previous crypto troubles

But while the sector faces regulatory pressures from the SEC, it is still recovering from other developments that have hampered the industry and the trust in its stability. The most notable of these was the collapse of crypto exchange FTX.

FTX was one of the world’s biggest crypto exchanges, but last November it filed for bankruptcy. The sudden collapse caused a significant fallout in the crypto market, as creditors were owed billions and accusations of fraud were aimed at FTX’s CEO Samuel Bankman-Fried.

The collapse had a knock-on effect for the industry and was a contributing factor to the collapse of Silvergate Bank in March. The bank had been forced to sell billions worth of assets throughout the start of 2023 as customer accounts were withdrawn, which eventually led to the bank winding down.

But FTX wasn’t the first issue for the crypto industry, as it had already suffered a series of knocks in 2022, with both bitcoin and Ethereum hitting record low values last year.

Last July, crypto lender Voyager Digital filed for bankruptcy amid “prolonged volatility and contagion” in the cryptocurrency market. That same month, a former investment manager for Celsius Network filed a lawsuit against the crypto lender and accused the company of being a Ponzi scheme.

Uncertain future

Other crypto players have suffered in recent months from issues outside of regulation. Cybersecurity remains a concern in the sector, with crypto lender Euler Finance losing nearly $200m from a flash loan attack – though this ended with the hacker returning all the stolen funds in April.

Security risks were also revealed last month with Multichain, a bridging protocol used in the crypto ecosystem. At the end of May, the company said it was suspending “cross-chain” routes as the team could not contact its CEO to obtain server access.

Rumours spread that the company’s CEO was arrested, though Multichain has not confirmed these claims. There is also evidence that the company’s transactions began working again on 5 June.

The EU is moving towards new measures to govern and safeguard the crypto industry, with the passing of the Markets in Crypto Assets (MiCA) legislation in the European Parliament in April.

But with new claims of illegal action aimed at prominent exchanges, the sector’s future – particularly in the US – remains uncertain.

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Leigh Mc Gowran is a journalist with Silicon Republic