3 - 5 minute read
The SEC’s recent lawsuits against Binance and Coinbase have caused a stir in the crypto community, with many claiming that they are arbitrary and unfair. However, Joshua Klayman, the U.S. head of fintech and Head of Blockchain and Digital Asset at the law firm Linklaters, has long forecasted these lawsuits and believes that they are a natural consequence of the SEC’s stance on cryptocurrencies. Chair Gary Gensler has consistently maintained that most cryptocurrencies are securities and that exchanges like Coinbase were always likely to be targeted for selling their securities without an official license.
Klayman sees the lawsuits as a massive push from the SEC to tell the crypto industry that the runway has ended and things need to change now. The timing of the lawsuits is not an accident; they are coming as the U.S. Congress is discussing the “Digital Asset Market Structure and Investor Protection Act” draft bill, which the SEC wants to make its mark on. Klayman believes that the SEC is trying to show that some tokens may be securities, but the big fish they are trying to hook are the trading platforms, not necessarily the tokens.
The lawsuits are troubling not only for exchanges but for token projects too. After the SEC mentioned Cardano (ADA), Polygon (MATIC) and Solana (SOL) in the two lawsuits, the trading platform Robinhood immediately announced that it wouldn’t support trading them anymore. Klayman points out that the SEC needs to answer some big unanswered questions, such as if it believes that 50,000+ assets are securities, what happens to them, are they going to be forever banned from trading in the U.S., will they be grandfathered in, and is secondary registration the way to go?
Klayman offers some advice to crypto companies, saying that they will need to take a hard look at their risk tolerance and decide whether they have the stomach for grinding legal battles. If they need money to be able to fight a multi-year legal fight, they will have to ask themselves if they continue doing what they’re doing to fund their defense. On the other hand, if they make any changes to their business, will the SEC say that this was an admission that they did something wrong?
The lawsuits are not about tokens per se; they are directed at companies that sell tokens. Klayman believes that the lawsuits might convince the U.S. Congress that it’s time to act, but many important issues will still have to be resolved in court. With Gensler’s public comments last week that the U.S. “doesn’t need more digital currency,” there is “an element of political theater and there is an element of convincing” the public that the SEC is doing the right thing. Klayman thinks that Gensler could have his own political reasons for such statements.
The Bottom Line
The SEC’s recent lawsuits against Binance and Coinbase have caused concern in the crypto community, but they were not unexpected. Klayman believes that the SEC is trying to show that some tokens may be securities, but the big fish they are trying to hook are the trading platforms, not necessarily the tokens. Crypto companies will need to take a hard look at their risk tolerance and decide whether they have the stomach for grinding legal battles. While the lawsuits might convince the U.S. Congress that it’s time to act, many important issues will still have to be resolved in court.
