How Could Coinbase and Binance Ever Be Legal?
The SEC’s lawsuits show what crypto platforms shouldn’t do. But the US needs better rules defining what they can and should.
What is it?
Photographer: Stefano Rellandini/AFP/Getty Images
The Securities and Exchange Commission has fired a major new salvo in Chair Gary Gensler’s war on crypto, declaring illegal two of the world’s largest digital-token trading platforms, Binance and Coinbase. It’s a welcome development: In myriad ways, the two enterprises exemplify what financial intermediaries shouldn’t do. What’s needed now is an actual rulebook.
The SEC complaints, filed in federal court, read like a catalogue of what’s wrong with the intermediaries through which most US investors interact with crypto. Both Binance and Coinbase sold products that had the features of securities, without registering as such. Much like the now-defunct FTX, they combined exchange, brokerage and clearing services — traditionally separated to avoid conflicts of interest — while failing to meet basic standards for disclosure or investor protection. Among other things, according to the SEC, firms controlled by Binance’s owners misused customer funds — putting nearly $200 million, for example, into an account that was used to buy a yacht — and engaged in “wash” trades that artificially inflated transaction volumes. The agency is right to crack down on such conduct.