Let’s talk Binance. I was originally going to write about the market structure bill that passed last week, but then SEC sued Binance. The SEC then sued Coinbase. Let’s discuss both.

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The Narrative

Over the course of two days, the U.S. Securities and Exchange Commission filed two lawsuits and a request for a temporary injunction against Binance and Coinbase. These are the largest crypto exchanges in the U.S. and around the world. The suits have some similarities, but also some major differences.

Why it matters

This may be the case that defines how cryptocurrency is regulated in the U.S. We’ve heard the complaints, but the real question is: how will Coinbase and Binance defend themselves?

Breaking it Down

The various lawsuits have already been covered in more than 2,000 words, so I won’t recapitulate them here. Please click the links below to read about my coverage of both the Binance litigation and Coinbase litigation.

Right now, I’m interested in hearing the company responses. Binance and Coinbase both released a series of statements, and their respective executives have commented on TV and Twitter regarding the allegations.

The differences are clear: Coinbase CEO Brian Armstrong has been on the TV and conference circuit saying that Coinbase will not shut down its Staking Service. (This service is also under fire from ten state regulators), while binance.us announced last Wednesday that it would stop trading over 50 token pairs. Most of these were traded against tether (USDT), a stablecoin. Binance has stated multiple times that the funds of its customers have never been in danger.

Since receiving its wells notice in early this year, Coinbase has been making that it is now public under the SEC.

Armstrong told Twitter that the SEC had reviewed their business and approved them to go public in 2021.

This is a false claim, according to Alexandra Damsker. She was a former SEC lawyer and now advises INX. She said that a reviewer at the Division of Corporation Finance does not have the authority to determine whether a transaction is legal or unlawful, but they can alert another enforcement officer or the Division of Enforcement if something seems questionable.

Damsker stated, “I don’t have the knowledge to tell them what they are doing is illegal.” “I can’t say that it isn’t because I don’t know. “I can’t tell them it’s not because I don’t know. I also can’t comment because that would make the industry, or the market, aware that something might be illegal. That’s something we cannot do.” What should I do now? “I continued the process.”

She said that the Division of Corporation Finance will continue to conduct its own review. This includes looking for any material misstatements and omissions, as well as ensuring compliance with SEC rules.

Armstrong said that Coinbase also tried to “come into and register” as SEC chair Gary Gensler often stated, but there was “no path” to achieve this. This complaint was echoed in Congress by Robinhood compliance chief Dan Gallagher (and it’s important to note that Robinhood has received a subpoena related to its crypto-related activities). Coinbase and Binance both reiterated their complaints regarding regulation through enforcement instead of guidance. However, the SEC may have given some notice stating that they believed certain (specific) cryptocurrency are unregistered security.

This complaint boils down to a fundamental question: Are cryptocurrencies, at least those listed in the Coinbase or Binance complaints, securities? Coinbase’s attempts to convince the SEC to say otherwise are likely to be futile.

Binance is also taking a similar combative stance, saying in public statements that they had cooperated with the SEC investigation and worked towards a “negotiated resolution.”

While we take the SEC allegations seriously, it is not appropriate for them to be subject to an SEC enforcement measure, especially on an urgent basis. Binance stated that it would vigorously defend its platform. Binance said: “Unfortunately, SEC’s unwillingness to engage in productive dialogue with us is yet another example of their misguided and deliberate refusal to provide clarity and guidance for the digital asset market.”

Binance and Coinbase have some significant differences. Coinbase faces a fairly standard case, wherein the main accusation is that “you listed securities but didn’t register yourself as a clearinghouse, broker or exchange,” while the Binance case contains a number allegations alleging that Binance CEO Changpeng Zhao had secret access to Binance.US customer funds and diverted them to Zhao’s entities.

In a series of tweets, Binary.US claimed that the SEC had not previously expressed concerns about the customer’s funds and that their attorneys have already spoken to the agency regarding these issues.

Binance has until June 12 to respond to SEC’s request for a temporary restraint order. An hearing is scheduled for June 13th. I’m assuming that the company’s response will highlight some of its larger arguments against SEC’s overall complaint.

  • 14:00 UTC (10:01 a.m. ET) The House Agriculture Committee held a hearing on crypto legislation and regulation, featuring CFTC Chair Rostin Behnam, former CFTC Chair Chris Giancarlo (who’s now CEO of the Futures Industry Association), former Acting CFTC Chairman Walt Lukken (who’s now CEO of the Futures Industry Association), former AFTC Commissioner Dan Berkovitz, ex-SEC Commissioner Dan Gallagher (who’s currently ET) The House Agriculture Committee hosted a Hearing to discuss crypto legislation and regulations. Speakers included CFTC Chairman Rostin Berkovitz, Former CFTC Director Dan Berkovitz and Former SEC Commissioner Dan Gallagher.

  • 14:00 UTC (10 a.m. ET) The House Energy and Commerce Committee’s subcommittee for innovation, data and commerce hosted a hearing about blockchains. Speakers included Southern Methodist University law professor Carla Reyes and Villanova University professor Hasshi Sudler. Polygon Labs president Ryan Wyatt and Electronic Frontier Foundation senior fellow Ross Schulman were also present.
  • 14:00 UTC (10:30 a.m. The House Financial Services Committee conducted a hearing to preserve the role of the dollar in the global economy.

  • 13:00 UTC (9:30 a.m. Emergent Fidelity is scheduled to have a bankruptcy proceeding.

  • ( New York Times ) Twitter’s advertising revenue is down every year, according to the Times, citing a presentation made internally. It’s “unlikely that it will improve any time soon.”
  • ( Rolling Stone ) Will Gottsegan, a former CoinDesker, profiled Binance CEO Changpeng Zhao in an article published just days before SEC’s lawsuit.

You can reach me via Twitter @nikhileshde or by email at nik@coindesk.com.

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Next week, we’ll see you!