📌 MUST READS

SEC Sues Binance And Coinbase

When they write the history of crypto, 2023 will be the year the regulatory crackdown came to a head. Whether it’s attacks against staking, cutting off the industry’s access to banking, poorly-researched “reports”, or never-ending attacks from the SEC, it’s clear our regulators wish for nothing more than the demise of crypto.

And now the SEC has taken one of their biggest shots yet, suing dominant crypto exchanges Binance and Coinbase on back-to-back days.

But, although the suits were similar, the situations are completely different.

Binance
The SEC has been onto Binance for months now, and this suit is the culmination of those efforts. In short, it doesn’t look good for Binance:

We are definitely not fans of how the SEC goes about their business, but it looks like they might have a case with this one. Especially when, according to internal chat logs, Binance’s former Chief Compliance Officer admits, “We are operating as a fking unlicensed securities exchange in the USA bro”.

Binance is going to fight back… but between this suit and the CFTC one, their future in the USA looks bleak. Needless to say, and as if we haven’t said it enough, if you have digital assets on BinanceUS, now is probably a good time to get out.

Coinbase
As many readers know by now, the SEC has also been bullying Coinbase for months now, and to no surprise, are also charging the exchange. Here’s the gist of what Coinbase is getting slapped with:

The suit is absolutely ridiculous on multiple levels:

Like Binance, Coinbase is prepared to fight. But, unlike Binance, we believe Coinbase has a strong chance to win.

Our Thoughts
It's important to recognize that the crypto community was swift in assigning blame to the SEC in both instances.

We understand why.

From the inception of crypto in the US, the SEC has consistently been perceived as unfair towards crypto pioneers. The progress made on any regulatory framework has been pitiful at best. Moreover, the SEC has been notably unsuccessful in detecting FTX's fraudulent activities and safeguarding investors from entities like Greyscale, Voyager, Genesis, BlockFi, and so forth. These oversights have resulted in billions of dollars lost and have adversely impacted millions of Americans.

In light of the Binance allegations, however, one could make that argument that the SEC has finally done something right. CoinSnacks has openly shared our concerns about Binance. If the reports of commingled and misused user funds are indeed accurate, can we really fault the SEC for finally striking down hard on the exchange or attempting to implement a freeze order? Is this an overstep of their authority, or is the SEC genuinely attempting to protect US investors?

We can't say for certain. However, what remains clear, irrespective of the outcomes of these cases, is that the US needs visionary leaders, not inept regulators who seemingly go out of their way to work against, rather than with, crypto companies.

So far, the SEC's actions – especially when it comes to companies like Coinbase – have done nothing to dispel these concerns.
Coming To A Head
Government lawsuits against major crypto companies are never fun, and it’s especially not fun for Coinbase shareholders (down 13% since the announcement), but it’s not all doom and gloom...

The Coinbase suit especially will provide a sense of finality to the regulatory question. If they win, Gensler (who has only 17 months left on his term) loses a lot of steam. If they lose, regulated crypto in the US is most likely cooked for the foreseeable future.

So, there’s a lot on the line here, but it’s our best versus their best. You can’t ask for much more than that.

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🔍 DEEP DIVES

Coinbase and Cboe To Offer Derivatives

Valued at $196 billion, the cryptocurrency derivative market outpaces all others in the sector. Derivatives, which offer investors the ability to leverage their positions for potentially larger gains, also provides advanced risk management strategies that appeal to sophisticated institutional traders.

However, regulations make crypto derivatives trading very hard to do in the US. There really isn’t any place to go if you’re a US citizen who wants to trade crypto derivatives.

But perhaps that is beginning to change with the additions of the Coinbase Derivatives Exchange and Cboe.

Coinbase Derivatives Exchange
Coinbase Derivatives Exchange is the derivatives arm of Coinbase, but up to now, all they’ve been able to offer customers are Bitcoin micro-futures, which are Bitcoin derivatives contracts sized at 1/100th of a Bitcoin. It’s a start, but it’s not what investors really want.

Full-sized contracts are what investors want, and that is what Coinbase is now giving them with its new futures programs. This, much more to their liking, will enable institutional investors to trade contracts up to 1 BTC and 10 ETH.

Cboe Digital
Cboe Global Markets is probably not a company you’ve heard of before, but it might be one you hear a lot about in the future. That’s because their crypto exchange Cboe Digital has just gained approval from the CFTC to offer margined futures contracts for Bitcoin and Ether.

And, unlike Coinbase, you don’t need to be an institution to participate.

Combine this move with the fact that Cboe Digital also offers spot trading, and there very well could be another exchange contender emerging before our eyes.

Why Should I Care?
There's a high likelihood that many of you may never venture into trading crypto derivatives, and that's understandable. While derivatives can pave the way for significant gains, they can also lead to substantial losses.

For most, it's advisable to tread cautiously and keep a safe distance.

However, even if you choose to stay clear of derivatives, their introduction in the US has broader implications that are beneficial to all. Derivatives attract institutional investors, who bring substantial capital. This influx of capital can help bolster prices while improving liquidity, making trading smoother and more efficient. This influx of liquidity is particularly needed in the crypto space after trading firms like Jane Street and Jump scaled back their crypto operations.

Overall, this news serves as some positive momentum for the crypto sector, which had swiftly receded from the spotlight amidst the SEC's regulatory actions.

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🏛️ REGULATORY FRONT

The Most Promising Crypto Bill Gets Drafted

As readers of CoinSnacks likely already know, crypto regulation in the US is currently non-existent. Nobody knows what stablecoins are legal, whether cryptocurrencies are securities or commodities, or the process of becoming a licensed exchange.

Unfortunately, there is no easy fix for regulation, as most bills aren’t very good and don’t gain much traction.

But that doesn’t mean some members of Congress aren’t still trying. And the newest proposed bill from House Financial Services Chair Patrick McHenry (R-NC) and House Agricultural Chair Glenn Thompson (R-PA) is perhaps the most promising offering yet.

Market Structure Clarity
The bill primarily focuses on how crypto fits into existing US financial law. In other words, it seeks to answer the question of whether crypto is a commodity, and thus under the purview of the CFTC, or a security, and thus under the thumb of Gary Gensler at the SEC.

But, even then, it’s not totally black and white.

Each token will be treated as a separate entity, and any regulated crypto firm dealing with the token can make a case that it is a commodity by proving that it is sufficiently decentralized, meaning:

This would obviously be a huge step forward from the current system of SEC Chair Gensler unilaterally choosing which cryptos classify as securities.

Alternative Trading Systems
In addition to answering crypto’s market structure question, the bill also creates a new crypto institution: the Alternative Trading System (ATS).

An ATS would simply be an SEC-registered crypto-exchange, and these platforms would have the ability to handle trading in commodities and stablecoins.

Considering that registering with the SEC is currently an impossible task (just ask Coinbase), this would be a welcome sight for any law-abiding crypto trading platform.

Not A Done Deal
The bill is off to a strong start, but it’s still a ways off from the finish line:

So, until proven otherwise, we have to assume that this bill will also meet its demise somewhere in the legislative process. But we’re definitely hoping it makes it through.

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