After Binance, SEC files lawsuit against crypto exchange Coinbase

In a dramatic escalation of regulatory actions against the cryptocurrency industry, the US Securities and Exchange Commission (SEC) has filed a lawsuit against Coinbase, a major cryptocurrency platform.

This marks the second lawsuit in as many days targeting a leading crypto exchange, signaling a significant shift toward tighter regulation of a market that has largely operated outside traditional oversight.

The SEC's action against Coinbase comes on the heels of its lawsuit against Binance, wherein it accused the firm and its CEO Changpeng Zhao of engaging in a "web of deception".

If successful, these lawsuits could have far-reaching implications for the cryptocurrency market by firmly establishing the SEC's jurisdiction over an industry that has long argued against being regulated by the agency, claiming that tokens do not constitute securities.

"The two cases are distinct but interconnected, pointing in the same direction: the SEC's increasingly aggressive campaign to subject cryptocurrencies to federal securities laws," said Kevin O'Brien, a former federal prosecutor and partner at Ford O'Brien Landy. He also noted that the SEC has not previously taken on such significant players in the crypto space, making the outcome of these cases particularly significant.

Should the SEC prevail in either lawsuit, it could result in a transformative impact on the cryptocurrency industry. The SEC's complaint against Coinbase, filed in Manhattan federal court, alleges that the platform has been operating as an intermediary in crypto transactions since at least 2019, evading disclosure requirements designed to safeguard investors while generating billions of dollars in revenue. The SEC claims that Coinbase facilitated the trading of at least 13 crypto assets, including Solana, Cardano, and Polygon, which should have been registered as securities.

Coinbase has reportedly experienced significant consequences following the lawsuit, with estimated net customer outflows of approximately $1.28 billion, according to data firm Nansen. Shares of Coinbase's parent company, Coinbase Global Inc, fell by $7.10 (12.1 per cent) to $51.61, reaching a low of 20.9 per cent earlier in the day. Nonetheless, the company's shares have seen a 46 per cent increase so far this year.

In response to the lawsuit, Paul Grewal, Coinbase's general counsel, reassured that the company would continue its operations as usual and emphasized its commitment to compliance.

Ed Moya, senior market analyst at Oanda, suggested that the SEC's actions resemble a game of Whac-A-Mole, as it targets various crypto exchanges. He highlighted the broad range of tokens offered by most exchanges, which operate on blockchain protocols that are the focus of regulatory scrutiny. He stated, "It seems like this is just the beginning."

Ironically, Bitcoin, the leading cryptocurrency, has experienced a paradoxical benefit from the regulatory crackdown. After an initial dip to a three-month low of $25,350 following the Binance lawsuit, Bitcoin rebounded by over $2,000, surpassing the previous day's high.