The US Securities and Exchange Commission’s (SEC) lawsuit against crypto exchange Binance Holdings Ltd (幣安) and its cofounder and CEO Zhao Changpeng (趙長鵬) injects fresh uncertainty into a sector that is struggling to maintain mainstream relevance.
The SEC accused Binance and Zhao of mishandling customer funds, misleading investors and regulators, and breaking securities rules.
The action adds to the regulatory heat on the largest digital-asset trading platform. It is also another black eye for crypto after a rout last year that contributed to rival FTX’s downfall amid a flurry of fraud allegations.
Photo: Reuters
The market faces an uphill task to restore trust and, meanwhile, investors are moving elsewhere such as artificial intelligence stocks. The overall value of digital coins has plunged to US$1.1 trillion from a peak of more than $3 trillion in 2021, when giant stimulus fueled a COVID-19-era boom in tokens such as bitcoin.
Jane Street Group, Jump Trading and other major trading firms have pulled back from crypto in the US amid heightened regulatory scrutiny. The ensuing decrease in liquidity can pose an obstacle for investors by making it harder to get in and out of digital asset investments in an orderly way.
“The industry will be very different in a year,” Matrixport Technologies Pte Ltd research head Markus Thielen wrote in a note. “Trading volumes will likely drop further and pressure market makers’ revenue projections. Crypto in the US will continue to go through a nuclear winter.”
The SEC in the complaint cited 12 coins as assets that fall under its purview, expanding the list of tokens deemed unregistered securities to span more than US$115 billion worth of crypto. That implies strict rules should apply, which could make the tokens harder to trade if exchanges shy away from listing them.
Digital asset prices yesterday largely held a drop sparked by the lawsuit. An index of the top 100 coins has shed about 4 percent since the complaint hit on Monday. Bitcoin, the largest token, has fallen closer to the US$25,000 level.
The net outflow from the Binance exchange reached US$702 million on Monday, the highest since February, a Dune Analytics dashboard from exchange-traded products issuer 21Shares AG showed.
Binance called the SEC action “disappointing,” saying it had engaged with the agency in good-faith negotiations to settle the matter.
“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis,” the firm said. “We intend to defend our platform vigorously.”
The exchange faces a web of probes, including a lawsuit by the US Commodity Futures Trading Commission.
Action by the US Department of Justice “against Binance and/or related entities or individuals might not be too far behind,” Bloomberg Intelligence senior litigation analyst Elliott Stein wrote in a note.
Outside the US, locations such as Hong Kong and Dubai are seeking to court crypto investment. The EU in April approved the most comprehensive digital asset rules of any developed economy.
That potentially gives crypto firms friendlier places to try and recover from a deep retrenchment and learn the lessons of last year’s crash.
“The lack of US regulatory clarity will drive crypto to other jurisdictions,” Venn Link Partners Pte Ltd founder Cici Lu (陸戈) said.
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