SEC Charges Binance and Coinbase in Attempt to Regulate Crypto Market

Experts weigh in on impact of the SEC's charges

Nick Kuriya, portfolio manager and head of crypto with Purpose Investments, told the Investing News Network (INN) he was not surprised to see the SEC's string of charges against Binance and Coinbase.

The financial expert said most of his conversations with investors this week have involved to “a lot of curiosity” from those wanting to know more about why these companies have been charged.

Kuriya said he believes the SEC's charges should not affect the underlying thesis for cryptocurrency investments. He added that the SEC's regulation attempts have a specific focus on how crypto tokens are sold to investors.

“What it doesn't impact is kind of the underlying technology and the utility of these digital assets and crypto,” he said.

Purpose Investments has launched several cryptocurrency-related exchange-traded funds (ETFs) as a way to offer investors alternatives for accessing the digital asset space. In May, the firm announced an agreement under which Coinbase will "act as an additional sub-custodian for the funds (Purpose) manages that hold digital assets."

“What's really sort of at play here is effectively the classification of these crypto assets,” Kuriya told INN. The expert shared the following additional thoughts on how the SEC may be focusing in this review:

“Should (cryptocurrencies) be considered commodity use? Should they be considered securities? And if they are securities, and they're sold, what kind of disclosures need to be made to investors? What kind of safeguards need to be put in place in terms of operating procedures, compliance? That's really, I think, what the SEC is kind of focused on.”

In an emailed note, Will Paige, a crypto analyst at Insider Intelligence, said the SEC has been tasked with regulating the crypto space in the “absence of a regulatory framework in the US.”

In his view, this latest attempt by the SEC represents a wider crackdown on noncompliance. “Crypto firms may find out the hard way that operating by the 'better to ask forgiveness than permission' theory lands them in hot water,” Paige said.

The expert that added these suits are likely to “knock already weak consumer confidence in cryptocurrencies.”

The crypto community has expressed uneasiness with the SEC’s charges and their financial impact on the market.

“This is a bad faith lawsuit against a crypto platform that has made every effort to comply with the law,” said Adam Kovacevich, CEO of the Chamber of Progress. “If we want a safe crypto industry here in the US, we should be encouraging the kind of regulatory compliance that Coinbase has shown a willingness to pursue."

Impact for Coinbase, Binance and Bitcoin

Coinbase is publicly traded, and it suffered a heavy drop in value after the SEC's charges.

As of 10:43 a.m. EDT on Wednesday (June 7), Coinbase was trading at a price point of US$52.61, a serious drop compared to its year high of US$83.99. It has plummeted by 16.81 percent so far this week.

When it comes to Binance, investors pulled a record US$791.6 million out of the exchange after the charges against the company became public, as per crypto research firm Nansen.

Bitcoin, the leading cryptocurrency, also took a hit following the initial charges against Binance and Zhao.

After dropping to a monthly low of US$25,750 on Monday (June 5), Bitcoin bounced back after the allegations against the crypto exchanges, recovering to a price point of over US$27,000 on Tuesday.

Bitcoin is now trading at $26,430, up nearly 60 percent year-to-date.

Investor takeaway

The cryptocurrency space has so far shown unparalleled resiliency when it comes to challenges from regulators. While the industry continues to face questions about regulation, experts still believe in the potential attached to digital assets.

"Hopefully through this process the industry and investors get more clarity, because I think everybody's looking for clarity," Kuriya said.

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