The Securities and Exchange Commission sued Coinbase, the largest cryptocurrency trading platform in the United States, on Tuesday, claiming that the company broke securities law by not registering as a broker.
The nation’s top securities regulators filed the lawsuit a day after it sued Binance, the world’s biggest cryptocurrency trading exchange, for mishandling customer funds and lying to American regulators and investors about its operations.
The regulator’s actions against the two major crypto companies reflected a broad effort to end what U.S. authorities see as the era of lawlessness in the industry. With these and other lawsuits, the S.E.C. has sought to reshape the crypto sector by grouping digital asset exchanges with more traditional financial firms, like securities dealers, while pushing out individuals and companies it views as bad actors…
The action is consistent with the S.E.C.’s long-held view that most crypto products are no different from stocks, bonds and other securities and must comply with U.S. laws. That means the firms that operate as exchanges and provide a platform for trading and selling crypto products must be registered like any exchange or brokerage that facilitates stock or bond trading… [end quote]
The lawsuit is the culmination of a two-year effort by SEC Chair Gary Gensler to shift his agency’s enforcement strategy in crypto from the issuers of individual tokens to the online platforms where those assets are traded. While thousands of cryptocurrencies exist at any given time, there are just a handful of exchanges that serve as the access points to the crypto market for most investors… Tuesday’s lawsuit is another significant move toward regulating the entire crypto industry. …[end quote]
Cryptocurrencies were originally developed (at least partially) to evade government regulations and oversight. Before trading platforms were developed, individuals traded cryptocurrencies inefficiently. Trading platforms enable efficient large trades. But unregulated exchanges, like FTX, used customers’ money in ways that would be illegal in regulated brokerages.
The SEC isn’t acting directly against cryptocurrencies but trying to regulate the exchanges to protect customers.