US regulators are stepping up measures to squeeze the cryptocurrency sector out of the traditional financial system. Following the closure of cryptocurrency-friendly banks, the crypto exchanges Kraken, Coinbase and Binance have received pre-trial complaints. Negotiations over Binance have stalled, with the Commodity Futures Trading Commission (CFTC) first suing and now the Securities and Exchange Commission (SEC) joining.

In many ways, the SEC's claims echo those of the CFTC: serving US customers in circumvention of KYC and AML policies, wilful violation of securities/commodity options laws, market manipulation, commingling of customer and company funds, Binance.US' reliance on the will of CEO Changpeng Zhao (CZ), etc.

The newest and most serious among a long list of allegations is the disclosure of a scheme to move client funds into the accounts of companies controlled by Binance (Sigma Chain bought the yacht for $11 million) and into CZ's personal account (at least $62.5 million).

The SEC is demanding in court the cancellation of the illicit proceeds, the payment of fines and compensation, as well as a complete ban on Binance and CZ's operations in the US.

The supervisory authorities' effort to bring claims against Binance on its own shows that there was not only potential abuse of investor confidence by CZ but also gaps in the company's legal and regulatory framework. Essentially, the lawsuits from the CFTC call BUSD, ETH and LTC commodities, while the SEC views them as securities. However, none of the regulators have yet disclosed their criteria for assigning the cryptocurrencies any kind of status.

In an interview, SEC chairman Gary Gensler said that all cryptocurrencies except Bitcoin are securities. Based on court documents, Cointelegraph estimates that the SEC regards 61 tokens as securities. Recently added to that list are Solana, Cardano, Polygon, Filecoin, Cosmos, Sandbox, Decentraland, Algorand, Axie Infinity and Coti.

The confusion surrounding the status of cryptocurrencies is paving the way for new lawsuits against other market participants. First and foremost, this concerns Coinbase, the largest crypto exchange in the US, which is already ignoring the pre-trial claim and preparing to defend its right to provide staking in court. The SEC's extension of the list of securities allows a crypto exchange to be incriminated for violating the law, including for being an unlicensed securities broker.

While some financiers support the regulators' push to corner the cryptocurrency industry, others point to the risk of the US lagging behind in this promising industry and an outflow of capital and investment to cryptocurrency-friendly jurisdictions. 

Of course, if Binance loses, the markets will face a new wave of turmoil, but the trial could last for over a year. An example of this is that the SEC has been suing Ripple since 2020 in an attempt to have XRP deemed a security. A decision in the case is expected this year.

StormGain Analytical Group 
(platform for trading, exchanging and storing cryptocurrency)