The cryptocurrency exchange industry has recently come under fire, with the U.S. Securities and Exchange Commission (SEC) filing separate lawsuits against Binance and Coinbase, the largest exchanges in the world and the U.S., respectively. These lawsuits have raised questions about whether these companies will be subject to even more serious criminal charges brought by the U.S. Department of Justice.
Some dissenters at the SEC argue that the organization should have provided a pathway for firms to “come into compliance” with the law. In light of this, it’s important to consider the fact that the SEC’s function is to set standards for companies to follow, and not necessarily to root out bad actors. By filing suit, the SEC and CFTC signal what types of businesses or practices are less-than-desired in a functioning economy; going after the two biggest fish in crypto hints that all exchanges are at risk.
However, it’s not surprising that such regulatory enforcement exists. The SEC has been saying for years that existing financial rules apply to crypto services providers, and that cryptocurrencies resemble securities unless issued under specific conditions. The watchdog has also claimed that exchange operators have a responsibility to register with the SEC.
The SEC’s allegations seem to suggest an attempt to reshape the crypto industry completely. As a result, some predict that this move will bottom out the domestic U.S. crypto market, while others believe it may usher in an era for truly decentralized finance and decentralized exchanges. It should be noted, though, that allegations are not facts, and some degree of skepticism is warranted considering the clear bias of SEC Chair Gary Gensler.
One of the fundamental changes the SEC is seeking from crypto companies is more insight into who is using their platforms and how. This would require bog-standard surveillance and information disclosure rules found across financial markets. While an open-ledger design in crypto provides complete transparency for authorities to track bad actors, some argue that cryptocurrency networks have built-in systems for customer protection, which might be at odds with regulatory aims.
In summary, the future of crypto exchanges is uncertain, as the outcomes of these recent lawsuits may play out for years. Exchanges that want to operate as “centralized” companies might need to start acting more like fintech firms and banks, entailing more Know-Your-Customer (KYC) protocols, disclosures, and interactions with regulators. The ultimate impact of the SEC’s enforcement actions on the cryptocurrency landscape remains to be seen, but their influence is undeniable.
Source: Coindesk
