- With direct legal enforcement on exchanges, there are concerns about funds.
- Both Coinbase and Binance maintain funds are safe.
- There are ongoing issues that could affect the exchanges’ operations.
Whenever there is disruption and turmoil in the crypto space, investors often wonder if their funds remain safe. Currently, the situation for many users in the U.S. is confusing and disconcerting.
The quickfire lawsuits from the SEC against Binance and Coinbase have led to massive upheaval in the crypto space. But for those who use these popular exchanges, how safe are your funds?
The SEC’s Approach to Coinbase and Binance
Both Binance and Coinbase have been accused by the SEC of acting as an unregistered securities exchange. Coinbase has been actively trying to engage with the SEC about crypto frameworks and the agency’s jurisdiction. However, it is a little different regarding Binance and its run-ins with the Securities Commission.
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The global exchange has a subsidiary in the U.S. called Binance.US. This subsidiary is purported to operate independently from its parent company and falls under the jurisdiction of U.S. laws.
The SEC alleges that there have been tight controls between Binance and the U.S. branch. This has led the agency to try to reach the parent company through its U.S. subsidiary in this lawsuit, which holds 13 new charges.
The lawsuits have seen a string of major developments for the exchanges, giving rise to concern for those who hold their crypto on Binance.US, and Coinbase.
What Happened to Binance?
The precursor to the SEC’s action against Baince came from an exclusive report by Reuters, On June 5, uncovering how a senior Binance executive was in charge of five bank accounts belonging to Binance.US.
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The SEC then sued Binance and its U.S.-based affiliate, BAM Trading Services, on June 6, detailing 13 counts against the global exchange, including wash trading and allowing U.S. clients to subvert their own controls.
This lawsuit saw a net outflow of 11,380 Bitcoin and 91,223 ETH, equivalent to $462 million in the day following the lawsuit, as users looked to ensure their funds were removed from the fracas. But what of the funds that remain on Binance and Binance.US?
Are My Funds Safe on Binance?
On June 6, the SEC asked the United States District Court for the District of Columbia for a temporary restraining order on BAM Management and BAM Trading assets. This made many fearful and could have been the catalyst for outflows.
However, It is worth noting that the scope of the request only covers the transfer of customer deposits to Binance-related entities enjoined in the lawsuit and does not affect customer withdrawals. Thus, if the SEC’s request was met down the line, it would rather mean struggles for Binance.US’s payroll and other financial commitments.
On June 9, Binance.US announced that they were suspending USD deposits and notifying customers that their banking partners were preparing to pause fiat (USD) withdrawal channels. This essentially turned the exchange into a crypto-only exchange.
At the time of writing, all funds are safe. Operations are limited, though. Users can not buy or sell crypto on Binance.US with fiat payments, and fiat currencies can not be withdrawn from the exchange.
Apart from the fiat aspect of the business, Binance.US reassured users that all other services remain operational while reiterating 1:1 reserves.
“To be clear, we maintain 1:1 reserves for all customer assets…Moreover, trading, staking, deposits, and withdrawals in crypto remain fully operational,” Binance.US said on June 9.
Furthermore, on June 13, the SEC and BAM Trading filed a request for a consent order that would ease some of the restrictions from a previous SEC, as Judge Amy Berman Jackson declined the request by the SEC to freeze the assets of Binance’s U.S. operations.
As it stands, customer assets on Binance and Binance.US seem safe and secure, and not at the heart of any legal actions. “Customer assets are secure, appropriately segregated, and available to customers,” lawyers said in June 12 court filings.
Binance.US has also mentioned it has worked with custodians to make sure dollar deposits are held in accounts at FDIC-insured banks.
What Happened to Coinbase?
The publicly listed crypto exchange is tackling the SEC’s lawsuit differently from its competitor Binance. CEO of Coinbase, Brian Armstrong, has happily taken up the fight and says he is “proud to represent the industry in court to finally get some clarity around crypto rules.”
Armstrong also clarified, on June 6, when the lawsuit landed, that “the Coinbase suit is very different from others out there – the complaint filed against us is exclusively focused on what is or is not a security. And we are confident in our facts and the law,” he Tweeted, referring to the Binance lawsuit.
Coinbase has been engaging with the SEC regarding ongoing issues with the agency’s reach in the crypto space. In March, the exchange reacted to the SEC shutting down Kraken’s staking services by sending a petition to the SEC discussing securities law treatment of services related to validating proof-of-stake protocols.
However, despite its best efforts, Coinbase was eventually served with a Wells Notice days after the petition. This was probably the writing on the wall for Coinbase, but as was the case then, customers’ funds have stayed removed from the SEC and Coinbase’s disagreement.
Are My Funds Safe?
The SEC’s focus on selling alleged securities alone means customer assets and funds are not in any real danger. However, assets labeled as securities, such as ADA, SOL, and other high-profile altcoins, may become difficult to buy, sell and trade as the lawsuit evolves.
However, Coinbase, as a publicly-listed company that prides itself on compliance, has many safeguards in place.
For example, Coinbase state they have 1:1 reserves for customer assets. The exchange also keeps its client cash in Federal Deposit Insurance Corporation-insured banks, which protects $250,000 per depositor, per account, according to the company’s website. More significant cash balances are sent to money market mutual funds, which are conservative and highly liquid, Coinbase added.
What Should I Do with My Funds?
While customer funds on both exchanges appear to be entirely safe and secure, moving or removing them from Coinbase and Binance rests on a customer’s risk appetite.
The FTX collapse is still fresh in the minds of many; however, the circumstances at Binance and Coinbase are not similar at all. What FTX does highlight is how quickly things can change. The recent bank collapses of Silvergate, Silicon Valley, and Signature show the dangers of entirely regulated banking.
Users are still quite free to move and remove their assets from both exchanges. However, in the case of Binance, there are no longer fiat off-ramps. Users can move their funds to other exchanges or take them offline into hardware wallets.
Read more about the SEC vs. Binance Hearing:
SEC vs. Binance Hearing Rundown: Asset Freeze, Compromise, Regulation by Enforcement
Read more about a restructuring plan for the SEC:
Flipping the SEC: How Davidson’s Restructuring Plan Works
