The US Securities and Exchanges Commission (SEC) has filed lawsuits against two of the world's largest crypto exchanges: Coinbase and Binance, in a move that throws into question the future of crypto operators in the US.
The news made crypto shares plummet, with US-listed Coinbase dropping 13.4% the day after SEC’s announcement. Singapore-based exchange, Crypto.com, published a statement announcing suspension of its institutional services in the US from June 21, citing weak demand.
The SEC has claimed that Coinbase and Binance have been operating in the US as unregistered securities exchanges, brokers and clearing agencies, thus breaching investor protection laws. It has frozen Binance’s US assets.
Coinbase CEO, Brian Armstrong, has argued that Coinbase is suffering the consequences of failure by US regulators to agree on whether cryptocurrencies should be determined as securities or commodities. In April, Coinbase sued the SEC claiming that the authorities had failed to respond to its months of requests for clarification.
“The industry has asked for clear rules and guidance on how crypto businesses should comply with these laws, yet it certainly seems like the SEC has not provided much feedback, nor in fact a clear pathway going forward,” Kristi Swartz, partner at DLA Piper, told FinanceAsia.
The latest news follows the collapse of trading platform, FTX, which observers noted would lead to heightened scrutiny, late last year. Additionally, the SEC has targeted exchanges, Kraken, Gemini and Genesis, in recent months.
Regulatory impact
The near-term implications of the US crackdown for the crypto market include more regulatory uncertainty, said Swartz.
“The market will need time to digest the latest developments, so too will other regulators around the world. It would be prudent for crypto businesses to seek legal advice on how the US regulatory landscape may impact upon their overseas operations,” she shared.
Vivien Khoo, co-founder and chair of the Asia Crypto Alliance, told FA that she does not expect a drastic change in the treatment of the virtual asset class by regional regulators as a result of the latest US crackdown, especially given that markets in Asia have only recently moved to implement their own regulatory frameworks for crypto assets.
Hong Kong implemented a new licensing regime for virtual asset trading platforms (VATPs) on June 1 following extensive industry review and consultation.
In fact, some market participants argue that the latest developments could be beneficial for Asia, as they enable the region to position itself as a more crypto-friendly environment. In contrast to the US, Hong Kong has been accommodative to crypto firms, having recently invited Coinbase to set up operations in the territory.
“This is definitely going to benefit non-US jurisdictions,” Khoo said.
“The latest decisions from the US didn’t come out of the blue,” another crypto industry expert who wished to remain anonymous told FA. He added that the SEC’s possible re-categorisation of crypto assets as securities had been the subject of many discussions that he had been involved in, alongside VC participants.
“The latest announcement is problematic for crypto firms based in Asia who want to expand in the US, because the evolving regulatory environment means that they cannot stay compliant and are constantly under threat of breaching the law,” the expert said.
A managing director at a Hong Kong-based crypto exchange emphasised the damage this may have on the US’s reputation as a global cryptocurrency centre:
“Crypto firms in Asia who were expanding into the US now have to reevaluate. First, it’s harder to find a US bank account for fiat on- and off-ramp – converting fiat into crypto and vice versa – and those offering such services are back-logged. Second, any entity offering services around crypto assets will remain under close purview of the SEC – even if done correctly, in a manner akin to Coinbase,” he said.
Coinbase is licensed in the US as a money transmitter and has been listed on Nasdaq since 2021, meaning its filings are subject to SEC scrutiny.
“The shift in focus back to Asia is normal amid clearer licensing and regulatory rails in this region, particularly with the Hong Kong Securities and Futures Commission (SFC),” the source added.
Swartz said that the recent regulatory developments would be likely to boost the already growing number of enquiries that the DLA Piper team is receiving from US-based crypto firms looking to set up in Asia and the Middle East.
“Regulators in this part of the world – in particular the SFC, Dubai’s Virtual Assets Regulatory Authority (VARA) and the Monetary Authority of Singapore (MAS) – have been actively engaging with the industry and making significant progress in trying to regulate crypto-related activities,” she said.
Swartz participated in a group of industry experts that advised VARA in its construction of a virtual assets framework, in February.
Going forward, there will be more efforts by regulators to align their definitions of virtual assets, Khoo said. For example, the International Organisation of Securities Commissions (Iosco) recently published a consultation paper setting out recommendations for global regulatory standards.
“But I don’t see Asia changing regulations any time soon,” she concluded.
