Following the announcement of the United States Securities and Exchange Commission (SEC) filing lawsuits against major cryptocurrency exchanges Binance and Coinbase, the regulator is now facing backlash from prominent crypto and blockchain lawyers. Notably, legal experts such as Jake Chervinsky and a former agent of the regulator have voiced their concerns regarding the potential impact of the agency’s actions.

The lawsuits filed by the SEC against Binance and Coinbase have sparked discussions regarding the regulatory body’s recent interventions in crypto.

Blockchain supporters have perceived these actions as “regressive and potentially detrimental” to the economy and the overall growth and advancement of the industry.

In a tweet on June 6, Chervinsky, a renowned crypto layer and the Chief Policy Officer at the Blockchain Association, said the SEC’s action has led to the “destruction” of investors’ portfolios. 

This perspective contradicts the core objective that the SEC has consistently emphasized: safeguarding the interests of investors.

Minutes after the regulator announced that they were suing Coinbase, the exchange’s stock at the NASDAQ, COIN, tanked over 20%. 

Going by recent events, the lawsuit has only pressurized COIN, that’s still reeling from the effect of the crypto winter of 2022, which saw the stock’s price plunge as activity in Coinbase contracted. Subsequently, falling revenue adversely affected COIN’s valuation, forcing the stock to tank by more than 80% from 2021 peaks.

Although Bitcoin prices are steady at spot rates, BTC tanked on June 5 minutes after the SEC said it was suing Binance. BTC is trading below critical levels posted in May and remains under pressure below $27,000.

On multiple occasions, the SEC has justified their enforcement actions on several cryptocurrency projects saying they were keen on carrying out their mandate, which primarily involved protecting US investors against fraud and risks. 

As of March 2023, the agency had issued over 120 enforcement actions against crypto companies and individuals claiming that they violated, among others, offering and selling of unregistered securities, misleading investors about the nature of their investments, and failing to register as a broker-dealer or a securities exchange.

The SEC is accusing Binance and Coinbase of, among other charges, offering unregistered securities and failing to register as securities exchanges. 

While the regulator has listed instances to justify their allegations against Binance and Coinbase, TuongVy Le, a former SEC employee and the present head of regulatory and policy at Bain Cap Crypto, thinks that it will be virtually impossible for Coinbase to register as a securities exchange, broker, or clearing agent. 

She adds that the regulator has not alleged that Coinbase defrauded investors. Instead, in their lawsuit, the regulator wants the exchange to do what she calls “impossible.”

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