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Market Check-in

This Week in Crypto

The SEC comes after Coinbase

The SEC continues its regulatory enforcement on the crypto market, filing a lawsuit against Coinbase, the country's biggest crypto trading platform, for allegedly operating without registering as a broker. This follows the SEC's accusations against Binance a day later, for purported mishandling of customer funds and misleading American regulators and investors. Regulators are attempting to reshape the crypto sector by treating digital asset exchanges like conventional financial firms, rejecting the notion that they require new rules.

Coinbase is accused of prioritizing profits over investor interests and regulatory compliance, with the SEC claiming that the company operated as an unregistered exchange while advertising some of its products as securities during its IPO. Coinbase argues that SEC's approval of its IPO implicitly endorsed its business model. The SEC, however, insists that crypto assets (specifically 13 named in the suit) are akin to stocks, bonds, and other securities, implying that firms providing crypto trading platforms must register like any other exchange or brokerage. As regulatory tensions rise, Coinbase faces additional lawsuits from securities regulators in 10 states for selling unregistered securities, adding to the pressure for legislative clarity around whether digital assets are securities or something distinct.

PoolTogether Case Gets Thrown Out

The lawsuit filed by Joseph Kent, the technology lead for Warren’s 2020 presidential campaign, against the no-loss lottery protocol PoolTogether and its backers has been dismissed by a Brooklyn federal court judge. The central question, whether PoolTogether constitutes an illegal lottery under New York law, remained unanswered as the judge ruled that Kent lacked standing to sue. The case had political undertones due to Kent's previous role in Sen. Elizabeth Warren's 2020 presidential bid and his concerns about the environmental and regulatory implications of the cryptocurrency ecosystem. The court found that Kent had not experienced any harm, as he could withdraw his contributions at any time and the transaction fees he incurred were not imposed by the defendants.

OokieDAO’s Default Judgement

A federal judge has ruled in favor of the Commodity Futures Trading Commission (CFTC), setting a precedent that decentralized autonomous organizations (DAOs) can be held legally accountable as a "person" under the Commodity Exchange Act. The ruling came after Ooki DAO failed to respond to a CFTC enforcement action, leading to a default judgement that found Ooki liable for operating an illegal trading platform and unlawfully acting as a futures commission merchant. Despite arguments that DAOs should not be treated as singular entities, the judgement may open the door to future actions against DAOs and decentralized exchanges. As a result, Ooki DAO is prohibited from operating in the U.S., dealing with any CFTC-registered entities, and has been fined over $640,000.

BinanceUS Begins to Unwind

Following the announcement of a lawsuit from SEC against Binance, Binance.US, and CEO Changpeng Zhao on June 5th, Binance.US has seen a 78% drop in market depth across the top 25 crypto assets. This decline, attributed to the rapid exodus of market makers from the platform, indicates reduced liquidity, posing challenges for trade execution. The retreat could increase slippage and negatively affect the exchange's overall efficiency and reputation. In the week following the lawsuit, over $2.5 billion in net outflow reportedly left Binance, with an additional $112 million leaving Binance.US, according to crypto analytics provider Nansen. Binance CEO, however, disputes these figures. This comes after BinanceUS announced they would suspend USD deposits, saying bank partners will pause dollar payments this week (June 13).

Lawmakers Retaliate

U.S. Representative Warren Davidson has introduced the "SEC Stabilization Act" to the House of Representatives, aiming to remove SEC Chair Gary Gensler from his position. Davidson claims this is to protect U.S. capital markets from what he perceives as tyrannical leadership and to counter an alleged abuse of power. The proposed bill, co-authored by Rep. Tom Emmer, also intends to redistribute power within the SEC, add a sixth commissioner, prevent any party from holding a majority on the commission, and create an executive director role.

More reading from this week

1/ a16z Crypto Expands to the UK

2/ BOCI issues first tokenized security in HK on Ethereum

3/ Coinbase Stock Tumbles after SEC news

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