- The U.S. SEC continues to go after crypto businesses.
- In the most recent case against Binance, the agency has labeled several popular crypto assets as securities.
- The asset classification puts significant pressure on U.S.-based exchanges.
In 2023, United States financial regulators ramped up crypto enforcement efforts. The U.S. Securities and Exchange Commission has taken no prisoners, launching enforcement actions against Gemini, Genesis, Kraken, Beaxy, Bittrex, and most recently, Binance, all in the first half of the year.
The Binance case stands out for multiple reasons. Aside from scathing allegations of mishandling customer funds and wash trading, the number and popularity of tokens fingered by the SEC as unregistered securities have also given investors pause for thought.
U.S. crypto exchanges, for one, have a lot of thinking to do about their asset listings.
Popular Tokens Like ADA, SOL, and MATIC Face Delisting Risk
In its complaint filed on Monday, June 5, the SEC listed ten crypto assets as unregistered securities. The list includes BNB (BNB), Binance USD (BUSD), Solana (SOL), Cardano (ADA), Polygon (MATIC), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS), and COTI (COTI).
Including the two Binance-linked tokens, most of these assets are leading cryptocurrencies by market capitalization, widely supported on several U.S.-based crypto exchanges like Coinbase and Kraken. For example, Coinbase’s ADA/USD market is ADA’s second-largest market per data from CoinMarketCap.
The SEC’s decision to classify these assets as unregistered securities notably pressures these exchanges to delist them or risk facing enforcement action. It is worth noting that most U.S.-based exchanges ceased support for XRP in 2021 for the same reasons. In the wake of the SEC case against Binance, businesses will again be forced to decide whether to prioritize compliance over their trading volumes and vice versa.
Due to regulatory restrictions and uncertainty, U.S.-based crypto exchanges already struggle to compete with international peers. As reported by DailyCoin in April, U.S. crypto businesses failed to gain market share even though Binance shed about 20% of its market share in a month. As highlighted in the report, Kaiko data indicated that this volume had moved to overseas exchanges like Upbit instead.
Coinbase’s share price tanked by about 10% in response to the news of the SEC case against Binance. In March, the SEC sent Coinbase notice of its intentions to launch enforcement action over several aspects of its business.
On the Flipside
- Coinbase has expressed willingness to contest the SEC’s classification of crypto assets.
Why This Matters
The SEC’s classification of popular crypto assets as securities could make it difficult for U.S. residents to trade their favorite crypto assets.
Read this to learn about how the SEC case against Binance differs from the CFTC lawsuit:
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Binance is an international crypto exchange listed as being incorporated in the Cayman Islands. It is not subject to U.S. laws nor regulated by the SEC though the regulator has asserted jurisdiction over spot crypto markets in the U.S.
The SEC has accused Binance of operating an unregistered securities exchange in the U.S. In addition, the regulator claims that the crypto exchange engaged in wash trading and mishandled customer funds.
Crypto exchanges delist tokens, not the SEC. However, the SEC’s classification of a crypto asset may force a crypto exchange to delist the token to avoid enforcement action. In this case, the token will no longer be supported for trading on that platform, forcing users to trade these assets elsewhere and costing the exchange revenue from trading fees.
The value of a token may decline depending on why it is delisted from a crypto exchange. These losses, however, may be temporary as the value of an asset can continue to change with time.