The recent lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Binance may serve as a cautionary tale for rival crypto exchange Coinbase (COIN). According to Berenberg analyst Mark Palmer, key details of the Binance lawsuit resemble earlier allegations made against crypto exchanges Bittrex and Kraken. Palmer suggests that these cases could foreshadow similar legal action against Coinbase.
In the lawsuit, the SEC alleges that Binance, its CEO Changpeng “CZ” Zhao, and Binance.US provided unregistered securities to the public in the form of the BNB token and Binance-linked BUSD stablecoin. Additionally, the agency accuses Binance’s staking service of violating securities law. This legal action, causing crypto markets to plunge, has negatively impacted Coinbase as well, as its shares fell by 9.1% to $58.71.
Coinbase received its own warning from the SEC back in March, signaling that an enforcement action connected to listing potential unregistered securities might be on the horizon. Palmer estimates that at least 37% of Coinbase’s net revenue could be jeopardized if the SEC targets its crypto token trading and staking operations. Despite these concerns, Palmer maintains a hold rating and a $55 price target on Coinbase’s stock.
Currently, Coinbase has garnered 11 buy ratings, 7 hold ratings, and 6 sell ratings, according to FactSet data. The potential consequences of SEC enforcement action are worth considering – specifically, whether Coinbase would have the flexibility to adjust its business model and geographic focus if forced to scale back or cease most of its U.S. operations.
Of course, such actions by the SEC may not be entirely detrimental. In fact, stronger regulations could potentially lead to increased stability and maturity in the crypto market. However, it is crucial for the industry to strike the right balance between regulatory compliance and fostering innovation. Overregulation could stifle advancements in blockchain technology and cryptocurrency, potentially halting much-needed progress.
In conclusion, the outcome of the SEC lawsuit against Binance will likely serve as an indication of what awaits Coinbase and other crypto exchanges. Investors and stakeholders need to weigh both the positive and negative implications of increased regulation and consider the various scenarios in which crypto-focused businesses like Coinbase must adapt or lose their footing in a rapidly evolving market.
Source: Coindesk
