The U.S. Securities and Exchange Commission filed lawsuits against Binance and Coinbase last week, the largest cryptocurrency exchanges in the world and in the U.S., respectively.
The lawsuits accuse the companies of violating securities laws, according to the SEC website.
“The allegations in these suits are just that — unproved," Stuart Alderoty, chief legal officer at Ripple, said in a June 6 Twitter post. "The SEC — despite what Chair Gensler pretends — does not have a magic regulatory wand that it can just wave and say tokens are securities. Looking forward to how the Courts and Congress will take this.”
Bloomberg Opinion columnist Matt Levine, a former attorney and investment banker, reviewed the complaints and said the "key legal question" at the heart of both lawsuits is whether digital assets are securities, commodities or something else, according to his Money Stuff newsletter.
"If they are securities, then probably Coinbase and Binance (and Bittrex and everyone else) are operating illegal securities exchanges; if they are not securities then everything’s fine," Levine wrote in the newsletter. "Just being a crypto exchange in the US is, in the SEC’s eyes, illegal.”
After filing the two lawsuits, Gensler delivered prepared remarks at the Piper Sandler Global Exchange and Fintech Conference June 8, where he pushed back against the insistence from lawmakers and industry participants that crypto companies need clearer regulations to follow, Crypto Slate reported.
“Congress included a long list of 30-plus items in the definition of a security,” Gensler said, according to Crypto Slate, referencing 1930s securities laws, which he argued are sufficient for covering digital assets. "Regardless, however, of the ledger being used, be it a spreadsheet, a database or blockchain technology, when investors put their money at risk, it’s the economic realities of the investment that matter.”
The week before the SEC's lawsuits against Binance and Coinbase, Congressmen Patrick McHenry, R-N.C., chairman of the House Financial Services Committee, and Glenn Thompson, R-Pa., chairman of the House Committee on Agriculture, released a draft of a bill intended to provide clarity for and fill the gaps in regulation of the digital asset industry.
The discussion draft includes amendments to the Securities Act of 1933 and the Commodity Exchange Act, which would add terms like "blockchain," "source code," "digital commodity custodian" and "digital asset issuer," according to a copy of the draft.
Last summer, Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., introduced the bipartisan Responsible Financial Innovation Act, aiming to provide a comprehensive regulatory framework for digital assets, according to a news release.
The bill included standards to determine which digital assets should be regulated as securities and which as commodities and gave regulatory authority over the digital asset spot market to the Commodity Futures Trading Commission, asserting most digital assets are more similar to commodities than to securities, the release reported.
The SEC has now claimed approximately 67 digital assets are securities, Coin Telegraph reported.
Binance responded to the lawsuit with a blog post, saying the company is “disappointed” the SEC has chosen this path, especially at a time when the industry is looking for more regulatory clarity.
"Unfortunately, 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 post said.
In response to his company's lawsuit, Coinbase CEO Brian Armstrong said, "We're proud to represent the industry in court to finally get some clarity around crypto rules," according to a June 6 Twitter post.