The U.S. SEC's actions against Coinbase highlight a regulatory vacuum in cryptocurrency
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The U.S. SEC's actions against Coinbase highlight a regulatory vacuum in cryptocurrency
Welcome to the official beginning of the cryptocurrency regulatory vacuum.
Navigating Web3 tides with focused insightsBy: Yueqi Yang, The Information
Translated by: Block unicorn
Welcome to the official beginning of a regulatory vacuum for cryptocurrency. That's where we are now, as Coinbase, the largest cryptocurrency exchange in the United States, says it has reached an agreement with staff at the U.S. Securities and Exchange Commission (SEC) to dismiss litigation accusing the company of operating an unlicensed securities exchange (at least that's what Coinbase claims—the SEC needs to confirm this after a commission vote).
On Friday morning U.S. time, Coinbase shares rose 2.2%. The news marked a significant regulatory development for the crypto industry, especially after the SEC decided to drop its long-running lawsuit against Coinbase, suggesting the industry has entered a period of regulatory uncertainty. Coinbase CEO Brian Armstrong said in a post on X that the dismissal means Coinbase will pay no fines and make no changes to its business, adding the company had spent about $50 million defending the case.
It appears the top financial regulator is pausing enforcement of decade-old securities rules related to crypto while waiting for Congress to establish new regulations—if Congress passes any at all. These legislative discussions could drag on for some time. Essentially, crypto companies have been granted temporary regulatory relief while Trump’s crypto task force figures out the next steps for the industry.
Although all of this may sound optimistic for the crypto industry, things aren't entirely rosy. Today we saw a stark reminder of some risks facing crypto: just two hours after Coinbase announced its good news, Bybit, the world's third-largest cryptocurrency exchange, confirmed a hack involving over $1 billion—the largest such incident in cryptocurrency history.
When hacks like this occur, panicked investors might pull their funds en masse, which could be devastating for an exchange if it lacks sufficient reserves to meet withdrawal requests. Currently, Bybit CEO Ben Zhou says the exchange has more than enough funds to cover the stolen amount and continues to process withdrawals normally. Still, both Bitcoin and Ethereum prices dropped, and Coinbase stock—up earlier in the day following news of the SEC action—fell 8% during afternoon trading.
It may take days or weeks before the situation becomes clear and any ripple effects emerge. Beyond exposing inherent risks in crypto, this hack also shows how existing safeguards within traditional financial institutions protect them from crypto-related vulnerabilities. This offers some reassurance to banks and traditional securities exchanges still under strict oversight from the SEC and federal banking regulators.
These firms have long argued that the crypto industry currently enjoys an unfair regulatory advantage. For instance, Nasdaq complained during a meeting with the task force earlier this month, urging the SEC to set a clear end date for the "laissez-faire" status of crypto exchanges. The exchange operator had previously expressed interest in launching a crypto business. Banks also want to offer crypto services to institutional traders and investors, possibly to avoid losing crypto-interested clients to crypto exchanges and trading firms. But they still need approval from banking regulators to do so.
This week, a powerful coalition of banking lobbying groups urged the Trump administration to find ways to ensure they won’t be left behind. This series of events not only highlights the fragility of the crypto industry but also reflects the advantages traditional financial institutions hold in terms of regulation and protective measures. As the crypto market continues to evolve and the regulatory landscape gradually takes shape, how to balance innovation with risk remains a critical issue to watch.
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