Josh Klayman on Coinbase and Binance ‘Industry Doesn’t Want Answers.’

Much of the cryptocurrency community believes that the recent lawsuits filed by the SEC against Binance and Coinbase are arbitrary, unfair, and based on shaky legal foundations. However, Joshua Klayman, the U.S. Head of Fintech and Head of Blockchain and Digital Asset at the law firm Linklaters, had long predicted these actions. She believes that the SEC’s actions are a natural consequence of the statements made by chair Gary Gensler over the years, specifically 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 this as a massive push by the SEC to change the industry’s practices, moving from nudging to a swift kick or a one-two punch. The SEC is telling the crypto industry that the runway has ended, and things need to change now. The timing of the lawsuits is not an accident, as the SEC wants to make its mark while the U.S. Congress is discussing the “Digital Asset Market Structure and Investor Protection Act” draft bill introduced in 2021.

Klayman acknowledges that one can disagree with the SEC’s approach to regulation, and it is up to the courts to decide on the specifics. However, this likely means a years-long litigation battle for Coinbase and Binance and continuing uncertainty for companies with similar exposure to the law. Crypto companies will need to take a hard look at their risk tolerance and decide whether they have the stomach for grinding legal battles. The case of Bittrex, another U.S. exchange, serves as a warning example, as the SEC interpreted the exchange’s deletion of statements from its website as an admission that the company understood they could attract regulators’ attention.

Read more: David Z. Morris – The SEC Is Fighting the Last War

The SEC’s recent lawsuits are not only concerning for cryptocurrency exchanges but also for token projects. After the SEC mentioned Cardano (ADA), Polygon (MATIC), and Solana (SOL) in the two lawsuits, the trading platform Robinhood immediately announced that it would no longer support trading them. Klayman, a legal expert, believes that the SEC needs to answer some important questions such as what will happen to the 50,000+ assets if they are considered securities, and whether they will be permanently banned from trading in the U.S. or be grandfathered in. Although the lawsuits are not about tokens themselves, they are aimed at companies that sell tokens. The SEC is trying to show that some tokens may be securities, but the main targets are the trading platforms, not necessarily the tokens.

Regulation coming?

The Coinbase and Binance lawsuits may convince Congress to take action, but many important issues will still need to be resolved in court. Before the downfall of FTX last November, there were several legislative attempts in Congress to liberalize the regulatory regime for crypto, but there was no political will to pass them. Now, post-FTX, Congress is divided on crypto, making it harder to reach a consensus on the way forward. Klayman believes that it is unlikely that legislation will be liberalizing and is more likely to make things tighter. Gensler’s recent public comments that the U.S. “doesn’t need more digital currency” may be political theater to convince the public that the SEC is doing the right thing. Klayman thinks that Gensler could have his own political reasons for making such statements. Despite these challenges, Klayman is optimistic about the future of the industry, especially where crypto can expand the realm of capital markets, for instance, in the tokenization of real-world assets and tokenized securities.