SEC Crackdown Sends Shockwaves Through Crypto Market: Coinbase and Binance Lawsuits Cast Doubt on Token Trading Future

SEC Chair Gary Gensler has intensified his criticism of the cryptocurrency industry this week by filing lawsuits against Coinbase and Binance for securities violations. This move has raised doubts about the future of token trading.

The lawsuits and Gensler's interview with CNBC on Tuesday, where he stated, "we don't need more digital currency," led to a sell-off in the crypto market. According to CoinMarketCap, four out of the top 10 most valuable coins experienced a decline of at least 15% this week.

The Securities and Exchange Commission (SEC) alleged that Coinbase was acting as an unregistered broker and exchange. The SEC identified at least 13 crypto assets, including SOL token from Solana, ADA token from Cardano, MATIC coin from Polygon, and FIL token from Protocol Labs, as "crypto asset securities."

Following suit, Robinhood, a popular trading app, announced on Friday that it would cease supporting the trading of Cardano, Polygon, and Solana coins starting from June 27. However, the company assured users that their other cryptocurrencies remained unaffected. Crypto.com also announced the closure of its U.S. institutional exchange on the same day.

The market value of Cardano, the seventh-ranked cryptocurrency, dropped by 20% in the past week. Solana, ranked ninth, experienced an 18% decline, while Polygon, ranked 10th, slid by 18%. Filecoin, further down the list, saw a 19% decrease. Binance's BNB token, ranked fourth, fell by 16%. Bitcoin and Ethereum, the two most popular cryptocurrencies, remained relatively stable, with each experiencing a decline of less than 5%.

Gary Gensler, appointed as SEC Chair by President Joe Biden in 2021, has been actively targeting crypto firms and exchanges over the past year for selling highly speculative and risky securities disguised as something else. From fraudulent cases involving FTX and Terraform Labs to multiple charges related to coin offerings and alleged false marketing, Gensler has made it his mission to address the issues within the crypto industry.

In an interview with CNBC's "Squawk on the Street," Gensler emphasized the importance of U.S. securities laws and called for crypto platforms and intermediaries to comply with regulations.

Coinbase, the only major U.S.-based crypto exchange publicly traded, witnessed an 18% decline in its shares this week. The legal chief of Coinbase, Paul Grewal, criticized the SEC's enforcement approach without clear rules, stating that it harms America's economic competitiveness and compliant companies like Coinbase.

In the SEC's lawsuit against Binance, it alleged that the company and founder Changpeng Zhao mixed billions of dollars worth of user funds and transferred them to a European company controlled by Zhao. Although Binance claims no official headquarters and operates mainly overseas, the SEC's complaint cited a senior executive's comment referring to the company as an unlicensed securities exchange in the USA.

After the charges were filed this week, various parties mentioned in the SEC lawsuit voiced their opinions. The Cardano Foundation disagreed with the classification of its ADA coin as a security and expressed a desire to engage with regulators and policymakers to achieve legal clarity.

Protocol Labs, the developer of Filecoin, defended the token's importance in its distributed storage network. Protocol Labs highlighted that Filecoin serves as a means to purchase storage from providers, offering a cost significantly lower than Amazon Web Services or Google Cloud. The company asserted that Filecoin is not a security but a cryptocurrency-powered global storage network preserving important information.

In its complaint against Coinbase, spanning 101 pages, the SEC emphasized that regardless of any utility these tokens may possess, they can easily be acquired by individuals solely interested in investment. Coinbase generates revenue by facilitating these trades without restricting them to individuals with intentions ohter than investment.