According to the SEC’s complaint against Binance, the group was operating an unregistered exchange, offering and selling unregistered securities, allowing U.S. customers to trade on the platform, and comingling customer funds. According to SEC chair Gary Gensler, “Through 13 charges, we allege that [founder and CEO Chengpeng] Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.” Binance executives have not helped themselves in that they repeatedly discussed in written forms how to evade the U.S. regulatory system.
Binance has, nonetheless, denied the allegations and pushed back on the SEC, asserting that “the SEC’s refusal to productively engage with us is just another example of the commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry … the commission has determined to regulate with the blunt weapons of enforcement and litigation rather than the thoughtful, nuanced approach demanded by this dynamic and complex technology.”
The SEC’s more narrow complaint filed against Coinbase strikes similar themes. The SEC alleges that Coinbase operates its trading platform as “an unregistered national securities exchange, broker, and clearing agency,” and that Coinbase wrongfully failed to “register the offer and sale of its crypto asset staking-as-a-service program.” While the charges are fewer, they are serious. Following the SEC’s announcement, Coinbase’s share price fell by 20 percent before recovering somewhat. Coinbase has rejected the charges, pointing out both its efforts to engage with the SEC and to comply with the commission’s often incompatible or contradictory requests, and that the SEC has been Coinbase’s primary regulator this entire time. Brian Armstrong, Coinbase’s CEO, has noted that the company recently met with the SEC more than 30 times in nine months in the hopes of receiving regulatory clarity from the commission.
U.S. House Financial Services Committee chair Patrick McHenry confronted Gensler in a committee hearing on digital assets, stating that Gensler’s “approach is driving innovation oversees and endangering American competitiveness.” McHenry suggested that “Congress must provide clear rules of the road for the digital asset ecosystem, because the regulators cannot agree. Regulation by enforcement is not sufficient or sustainable.”
Gensler ignored the concerns of the committee, and instead chose the most aggressive path possible by litigating its claims in the absence of appropriate regulatory guidance and rules making. Existing securities laws don’t work for crypto, and the SEC knows this. The SEC should have worked cooperatively with the industry, other regulators, and with legislators to develop a sensible regulatory framework built to suit for a technology that looks very little like what the SEC was designed to regulate when it was formed nearly a century ago. Yet for reasons unknown, the SEC chose to abandon this alternative.
Now, it could be that this is nothing more than a power play on the part of Chairman Gensler. In a regulatory “land grab,” Gensler is perhaps trying to force fit existing regulation to ensure that the crypto industry comes fully under the SEC’s regulatory purview and thus his influence.
An alternative interpretation is that the SEC is simply acting as the enforcement arm of a broader effort of the U.S. government to kill the emerging crypto industry before it reaches viability.
Without doubt, most governments fear and loath the idea of crypto. Bitcoin, Ethereum, and other protocols pose an existential threat to the functioning of the inflationary printing press of governments around the world, which rely on their monopoly power over the money supply to continue to issue debt to fund massive deficits which would otherwise be unsustainable.
Cryptocurrencies such as Bitcoin and Ethereum also upend the government’s control over financial freedoms. Crypto is both stateless and decentralized, in that it doesn’t rely on the government (or any centralized authority) to issue new money, the supply of which is algorithmically predetermined to prevent inflation. It is permissionless, in that no government, bank, or other intermediary can tell you whether you can or cannot transact. Like cash, crypto is anonymous, private, under the holder’s control, and inherently neither good nor bad.
Because of these characteristics, crypto cannot be attacked directly. Therefore, the regulatory agencies are going after the centralized exchanges that provide the on- and off-ramps between fiat money and crypto. While not strictly necessary, the exchanges make transactions much easier for customers who aren’t crypto-native tech bros. If the exchanges are shut down, millions of customers and users will have been deprived, not only of convenience but of freedom and of choice.
We are witnessing a tug-of-war between governments and their citizens for the future of money. Governments want to pretend that they have a better alternative to crypto in the form of central bank digital currencies (CBDCs). As the name implies, CBDCs represent a digitized form of the same government-issued, inflationary-prone fiat currency that is in operation today. The plot twist is that CBDCs will give governments even more surveillance power and control over citizens than they have today. While the technology to roll out CBDCs isn’t ready yet, it won’t be long.
The complaints filed against Bitcoin and Coinbase represent only a small skirmish in the broadening monetary conflict arising between governments and their citizens. The SEC is a mere weapon in this wider battle. The regulatory attack on crypto is chilling innovation, driving both creators and users offshore, weakening the technological leadership position of the United States while allowing our global competitors and even adversaries to take up the lead. It is leading the way toward greater government surveillance and control through the eventual issuance of CBDCs.
All of this represents a dereliction of duty and of good faith on the part of our government’s leaders. And it is bad for America.
