The U.S. Securities and Exchange Commission, or SEC, ripped off the bandage of crypto this week with two enforcement actions that were taken against the most prominent digital asset platforms, Binance and Coinbase. This finally established the SEC’s legal argument and set up future court battles that may decide everything.

The SEC’s argument that the crypto business model conflicts with securities laws is based on a double-edged sword. It also overlapped in its basic argument. The SEC contends that virtually all business activities conducted by crypto platforms must be registered and adhere to securities regulations, under its supervision. This is reflected in the actions taken and previous enforcements and speeches.

Terrence Yang is a former Wall Street attorney and managing director of Swan Bitcoin. He said, “I believe the sheriff has arrived in town.” His conclusion: “People need to double down on compliance.”

SEC has accused Binance and Coinbase for operating unregistered trading platforms and selling unregistered securities. This includes Binance’s digital assets, BNB, and Binance USD stablecoin (BUSD). These now-familiar accusations – which have been echoed by other recent SEC action – are now reaching their logical conclusion and will be repeated throughout the industry if the regulators latest actions succeed.

“These big, multinational exchanges operating globally in different jurisdictions will have a very, very hard time, because policymakers are becoming very, very strict around the globe,” said Gustavo Schwankler, a professor at Santa Clara University’s business school who also serves on a board for a crypto exchange.

Schwenkler stated that the SEC’s legal positions make it “much more difficult to operate” an American crypto platform. He said that the SEC has already decided what constitutes a security. This could make it difficult for other exchanges, such as Kraken and Gemini, to operate without SEC interference.

Joshua Ashley Klayman is the U.S. Head of Digital Assets at Linklaters LLP. He said that “the legal position of the agency combines several years of smaller enforcement actions against digital asset market participants.” It provides a comprehensive view of how the SEC sees the crypto landscape, and the different moving parts.

One-stop shopping

The SEC chair, Gary Gensler has been a consistent complaint that crypto firms tend to offer one-stop service that can create conflicts of interest between the company’s customers and the firms.

Gensler stated in a statement on Tuesday that “we allege Coinbase commingled, unlawfully offered broker-dealer and clearinghouse functions, despite it being subject to securities laws.”

Collins Belton, a crypto lawyer, Tweeted on Sunday that the SEC alleges that Binance is operating a non-registered exchange but that it also provides clearing services, acts as a broker-dealer for its customers and hasn’t been registered as either.

Rajeev Bamra, Moody’s Investors Service, said after Binance’s news that “these charges have the potential reshape regulatory landscape for digital asset.” He added that they’ll put pressure on other companies to “adapt their practices accordingly.”

The SEC has become accustomed to enforcement that follows a familiar path and ends in a consent agreement in which the company agrees with the agency to fix any problems, pay a fine and then move on. In several cases, companies in the crypto industry are resisting and forcing the SEC into lengthy court battles. Ripple’s response to the SEC’s view that XRP is an unregistered securities may be the most well-known example.

These companies are willing to fight because the accusations go after the core components of their digital asset businesses. If the SEC declares that an exchange cannot be an exchange, and trading must cease, then the company has two options: shut down the business and fight the regulator at court or continue to operate and fight in court.

Binance responded to the SEC’s misguided action on Monday. “We will vigorously defend both our business and industry.” “The coins are not an investment contract and are not securities.”

Coinbase Tuesday:

“The SEC is relying on an enforcement-only strategy in the absence clear rules for the industry of digital assets, which hurts America’s competitiveness, and companies like Coinbase who have demonstrated a commitment to compliance,” Paul Grewal said, Coinbase’s Chief Legal Officer and General Counsel, who stated that the solution would be a legislative action by Congress. “In the interim, we will continue our business as usual.”

Yang said that other crypto companies may have been nervous when they saw the SEC request that, in the case of Binance (alongside Binance.US), the court intervene urgently to restrain Binance’s activities. He said that it leaves Binance in a “fight for their life.” This was not the case for Coinbase.

Bittrex has already gone through the enforcement process, and Kraken had to settle with the SEC. This meant that Kraken would no longer offer staking services which the SEC deemed unregistered securities. Kraken’s exchange has not yet been targeted.

In a research note published on Monday, Capital Alpha analyst Ian Katz said that Gensler views the large exchanges as the key to crackingdown on the crypto industry in general.

Compare and contrast

Binance’s own attempt to focus the conflict on the SEC registration accusations was more than the accusations of the agency that Changpeng Zhao, his senior management and the founder deliberately and secretly attempted to avoid U.S. oversight by improperly handling the money from U.S. Investors.

Gensler stated in a press release that “they attempted to evade U.S. Securities laws by announcing fake controls which they ignored behind the scenes, so they could keep U.S. high-value customers on their platform.” The public should not invest their hard-earned money with these illegal platforms.

In its tweeting on the case, SEC highlighted a comment made by a chief compliance office at Binance who was quoted in the lawsuit saying to another compliance official: “We’re operating as an fking non-licensed securities exchange here in the USA, bro.”

Nelson Rosario is a Chicago-based lawyer specializing in digital assets who also teaches crypto classes. He said the quote was “among the worst things they could possibly say in writing.”

The Coinbase lawsuit was not as dramatic. It did not include the same level of accusations – that the company intentionally misled regulators and investors and moved and mixed customer funds improperly.

Schwenkler stated, “I fundamentally believe Coinbase is different from Binance.” “Their compliance may be much stronger than that of Binance.”

Coinbase, a U.S.-registered public company, has been in a war with the SEC even before it takes its enforcement action. The company has been fighting with the regulator in court. asked for a judge compel them to provide formal guidance to crypto industry. the agency replied that there are no special rules .

In the Binance and Coinbase instances, the SEC issued a list of crypto-tokens that were traded on both platforms despite its view that they are unregistered security. The SEC is not yet pursuing the token issuers. It has only targeted platforms like Binance and FTX that have issued their own.

“Again, the SEC claims certain digital assets were illegally offered as securities, without suing or identifying their issuers,” Patrick Daugherty said, a lawyer at Foley & Lardner who used to work at the SEC, but now represents crypto exchanges and companies in Chicago. “An SEC claim is not a court judgment. This is not a legally binding determination. It cannot be ignored, but it also can’t be disregarded. The SEC is aware of this. The SEC knows this.

Awaiting Congress

The crypto sector is now focusing its efforts on the U.S. Congress, hoping that it will finally impose new crypto-specific rules, like those proposed last week by Republicans of the House of Representatives.

The draft bill that was revealed by the House is “a step forward in not only crafting effective regulation for digital asset, but also reining in Chair Gensler’s relentless crusade,” stated Kristin Smit, CEO of Blockchain Association, an advocacy group in Washington.

Klayman stated that “the SEC actions seem to signal a move towards a meaningful change in the existing crypto market structure.” This move is interesting because many members of Congress are also focused on the crypto market structure.

The scandal-tainted SEC action, which exposes what it claims is the dirty laundry from the largest exchange in the world, and the long-awaited lawsuit against Coinbase, may not convince House Democrats or the Senate to rally around the crypto cause.

Katz argued that “the Binance allegations probably aren’t helpful to House Republicans renewed efforts to push forward with crypto legislation.”

SEC is moving faster than Congress, even if U.S. legislators are also stepping up. SEC lawyers are knocking on crypto companies’ doors, but no crypto laws have been passed yet.

Nikhilesh De.