SEC Investigating Binance, All U.S. Crypto Exchanges: Forbes

The financial regulator has stepped up its oversight of the digital assets space in recent weeks. 

U.S. Exchanges Under Investigation 

Coinbase is not the only cryptocurrency exchange the SEC is keeping tabs on, according to a staffer from Senator Cynthia Lummis’ (R-Wy) office. 

A Thursday report from Forbes quoting an unnamed employee from Lummis’ office has claimed that the U.S. financial regulator is probing Binance and every U.S. cryptocurrency exchange. According to the source, the SEC is looking to establish itself as the country’s chief crypto regulator as it continues its battle with the U.S. Commodity Futures Trading Commission for oversight of the industry.

The CFTC has maintained authority over “virtual currencies” since 2014, but in recent years, the SEC has made it clear that it wants to hold court over the space. SEC chair Gary Gensler has warned on multiple occasions that many crypto tokens could qualify as unregistered securities, and last week the agency gave its strongest hint yet that it wants to clamp down on the nascent market. In a court filing alleging that a former Coinbase employee and two of his associates had engaged in insider trading, the SEC claimed that the exchange lets customers trade “at least nine” unregistered securities. 

SEC Steps Up Crypto Oversight 

While the Coinbase insider trading allegations sent shockwaves across the industry, the SEC’s claim was also notable in that it has never previously targeted an exchange over its supported tokens. It then emerged that the regulator was probing Coinbase. Binance.US responded by delisting one of the tokens mentioned, AMP. 

The SEC’s wrath hasn’t stopped with Coinbase. Since the insider trading filing, Gensler has gone on record to say that he doesn’t see a difference between cryptocurrency exchanges and traditional stock trading venues, adding that there are “inherent conflicts of interest” with exchanges that act as market makers. The SEC also charged 11 people behind Forsage in what it called a “crypto pyramid scheme” that cost investors $300 million. 

While the SEC has recently been escalating its efforts to regulate the digital assets space, the CFTC has also been handed a possible route to establish more oversight on cryptocurrencies. This week, the Senate Agriculture Committee introduced the Digital Commodities Consumer Protection Act of 2022. If passed, the new bill would see Bitcoin and Ethereum classified as commodities and give the CFTC oversight of exchanges that list them for trading. With Bitcoin and Ethereum holding the top two spots on the crypto leaderboard, that would include Binance’s U.S. division, Coinbase, and every other major crypto exchange. The proposed legislation could theoretically still see other tokens classified as securities and therefore fall under the SEC’s purview. However, the bill would have to pass through Congress to come into effect, meaning the CFTC and SEC clashes could continue for some time yet. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.