From a regulatory standpoint, 2023 was one of the toughest years for the cryptocurrency ecosystem in its relatively short history. Increasing regulatory pressure both in the United States and elsewhere, meant that crypto advocates remained on the edge of their seats for most of the year.
While already set to a great start, this year will not be free of regulatory challenges. As the Security and Exchange Commission (SEC) and other regulators in the United States seek to establish a regulatory framework (or enforce a non-existent one) the future of crypto still needs to be determined.
This year, two of the biggest cryptocurrencies (Coinbase and Binance) will seek to have their lawsuits favorably resolved. Other minor legal battles, like that of OpenSea’s former Product Manager’s appeal, will also be quintessential in establishing legal clarity for crypto and other blockchain-based technologies in the long term.
SEC v. Binance: Evasion of U.S. Law
Binance, the world’s biggest cryptocurrency exchange, was sued late last year by the SEC for what the agency considered to be a “blatant disregard of the federal securities laws” and its “investor and market protections”. The exchange, as well as the other defendants, would also have operated while unregistered, offering “three essential securities market functions” while avoiding U.S. laws through several entities.
According to the agency, this disregard would have allowed Binance the defendants to “enrich themselves by billions of U.S. dollars” while also facilitating money laundering and sanction evasion. The lawsuit was filed back in mid-2023 but is still an ongoing case, one which Binance has attempted to have dismissed by claiming the agency didn’t have the necessary authority.
Before jumping straight into allegations of fraud, market manipulation, etc, however, the federal judge overseeing the case has decided to focus her early efforts on establishing what digital assets even are, according to CoinTelegraph. Judge Amy Berman Jackson said in a minute order that the court would hear arguments on ”whether a digital asset remains a security in perpetuity”. If found to be a security, the lawsuit would be likely to move forward, while the opposite would likely be the case otherwise.
SEC v. Coinbase: Are Cryptocurrencies a Security?
The issue of cryptocurrencies being a security has long been one of the major topics of discussion when it comes to cryptocurrency regulation. Unlike the SEC’s case against Binance, this is the cornerstone of the agency’s legal battle with Coinbase, a fact CEO Brian Armstrong was quick to point out hours after the filing. Binance’s lawsuit claims 13 violations while Coinbase’s claims are substantially lower at only 4, all of them focused on registrations.
According to the filing, Coinbase has broken the law by acting “as an exchange, a broker, and clearing agency, without registering as an exchange, broker, or clearing agency”. Armstrong’s tweet states that “the complaint filed against us is exclusively focused on what is or is not a security”.
When U.S. District Judge Analisa Torres sided with Ripple Labs back in 2023 by declaring that XRP didn’t violate the law as XRP was not a security, most experts saw it as a victory for crypto. This was boosted when the SEC had its appeal request rejected before choosing to drop all charges. Coinbase’s legal battle will bring further clarity on what the law considers to be a security, determining which agency (if any) can regulate it and how.
United States v. Nathaniel Chastain: Can NFTs Be Property?
Former OpenSea executive Nathaniel Chastain made news in 2022 when he was charged with wire fraud and money laundering for running the “first ever digital asset insider trading scheme”. As a high-level employee, Chastain was in charge of choosing which NFTs would be featured on the marketplace’s homepage. According to the charges, Chastain chose to use this information to “secretly purchase dozens of NFTs shortly before they were featured”.
Almost a year after being convicted last year, Chastain is appealing the decision by claiming that the confidential information he possessed “had no commercial value.” As this meant the information was not “protected property”, Chastain’s lawyers ascertained the conviction didn’t have legal ground.
While this case doesn’t directly relate to NFTs, cryptocurrency, or any other digital asset but the information surrounding it, its implications have the potential to affect the space. Regulators have long argued that by cracking down on these assets, they are protecting consumers from market manipulation, fraud, and similar activity.
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