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SEC vs Binance’s CZ: Is the Path Now Clear for a Bitcoin ETF?

Last Updated November 22, 2023 12:58 PM
Teuta Franjkovic
Last Updated November 22, 2023 12:58 PM

Key Takeaways

  • Changpeng Zhao (CZ) has resigned as part of a $4 billion settlement with US regulators.
  • Brian Armstrong sees the Binance deal as an opportunity for the crypto industry to establish clear regulatory guidelines.
  • John E. Deaton agrees with Armstrong that Coinbase could emerge as a winner of the regulatory developments.

Changpeng “CZ” Zhao has resigned  as CEO of Binance as part of a significant $4 billion settlement reached between the cryptocurrency exchange he established and various United States regulatory agencies.

The announcement , made by Zhao and several regulatory bodies on Tuesday, November 21, marks the conclusion of extensive investigations by entities such as the Department of Justice into allegations of anti-money laundering violations and sanctions breaches.

Coinbase CEO Welcomes Binance Settlement as Catalyst for Clear Crypto Regulations

The SEC had previously accused Binance and CZ in June of running an unregistered exchange and misleading investors by utilizing a Switzerland-based fund, Sigma Chain, also owned by CZ, to artificially boost trading volume on Binance’s U.S. platform.

SEC Chair Gary Gensler then stated that through thirteen charges, they alleged Zhao and Binance entities engaged in deception, conflicts of interest, lack of disclosure, and deliberate evasion of the law.

Be it as it may, the case is still ongoing, and Coinbase CEO Brian Armstrong, whose company has also faced regulatory scrutiny, welcomed the action  against Binance as an opportunity to establish clear regulatory guidelines for the cryptocurrency industry.

Armstrong furthermore emphasized  the importance of compliance in the cryptocurrency industry. He mentioned that Coinbase obtained the necessary licenses, established compliance and legal teams, and became a public company to prioritize trust and adherence to regulations.

While this approach meant slower expansion and financial challenges for Coinbase, Armstrong suggested that the compliance approach was the right path. In contrast, he alluded to Binance’s recent settlement and CZ stepping down, implying that Binance faced difficulties due to its non-compliant practices.

Last year, Armstrong was all about highlighting the lack of regulatory clarity from the SEC, stating that 95% of trading activity goes offshore due to the absence of clear regulations. He then argued that it is unreasonable to penalize U.S. companies when the SEC has not provided sufficient guidance.

Armstrong made these comments  in response to a statement from U.S. Senator Elizabeth Warren, who criticized the crypto industry as “smoke and mirrors” following the collapse of FTX last year. Armstrong then emphasized that FTX.com was an offshore exchange not regulated by the SEC.

Benefiting from Regulatory Crackdown and Spot ETF Approval

That being said, John E. Deaton, Ripple’s lawyer, shares the view  that Coinbase could emerge as a significant beneficiary.

He points to the narrative around exchange-traded funds (ETFs), emphasizing that Coinbase plays a crucial role in this space. The regulatory developments and actions against Binance might position Coinbase, with its compliance-focused approach, to thrive in the evolving cryptocurrency landscape.

The prominence of Coinbase Inc. is notably highlighted in the spot ETF applications submitted by various institutional players such as BlackRock, Chicago Board Options Exchange (CBOE), and Fidelity.

This recognition is particularly emphasized through the inclusion of Coinbase in their surveillance sharing agreement (SSA) , as outlined in Nasdaq’s 19b-4 form. The widespread acknowledgment of Coinbase as the largest cryptocurrency exchange in the U.S. is a key factor contributing to its popularity in this context.

A Surveillance Sharing Agreement (SSA) is a formal arrangement between cryptocurrency exchanges and regulatory bodies or market surveillance providers, such as the SEC. Its purpose is to enhance the integrity and transparency of the crypto market by facilitating the sharing of trading data and relevant information.

Coinbase plays a significant role in the U.S.-based spot trading platform for Bitcoin, representing a substantial portion of Bitcoin trading denominated in U.S. dollars. The collaboration between Coinbase and the CBOE ETF applications commenced on June 21.

In the past, the SEC raised concerns about cryptocurrency exchanges engaging in “conflicting activities” and having “limited monitoring.”

If spot ETFs are approved, institutional players would have the ability to share trade data, book information, and other pertinent market data with the commission. This collaboration aims to address the SEC’s concerns about potential market manipulation, providing greater transparency and confirmation of fair market practices.

Deaton has disclosed  that he expanded his holdings in Coinbase (COIN) shares, anticipating that Coinbase is positioned to be a major beneficiary in the evolving cryptocurrency landscape.

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