Compilation: Block unicorn
Welcome to the official start of the cryptocurrency regulatory vacuum. This is the situation we are in now, as the largest cryptocurrency exchange in the United States, Coinbase, has stated that it has reached an agreement with the staff of the U.S. Securities and Exchange Commission (SEC) to dismiss the lawsuit accusing the company of operating an illegal securities exchange (at least that's what Coinbase says - we'll have to wait for the SEC to confirm this news in a commission vote).
On Friday morning last week, U.S. time, Coinbase's stock price rose 2.2%. This news has sparked important progress in the cryptocurrency industry's regulatory landscape, especially as the cryptocurrency industry seems to have entered a regulatory vacuum after the SEC decided to drop its long-standing lawsuit against Coinbase. In a post on X, Coinbase CEO Brian Armstrong stated that the dismissal means Coinbase will not pay any fines or make any changes to its business, and added that the company has spent about $50 million to litigate this case.
It appears that the top financial regulators are temporarily suspending the enforcement of securities rules with a decade-long history related to cryptocurrencies, as they are waiting for Congress to enact new rules - if Congress can pass any rules at all. And these congressional deliberations are likely to drag on for some time. Essentially, cryptocurrency companies have been promised regulatory exemptions while Trump's crypto task force tries to figure out the industry's next steps.
Although all of this sounds optimistic for the cryptocurrency industry, things are not all rosy. We saw a reminder of the risks facing cryptocurrencies today: just two hours after Coinbase released the good news, Bybit, the world's third-largest cryptocurrency exchange, confirmed that it had suffered a hacking attack of over $100 million, the largest hacking incident in cryptocurrency history.
When such a hacking attack occurs, panicked investors may withdraw their funds en masse, and if the exchange does not have enough capital to meet withdrawal requests, this could be a fatal blow to the exchange. Currently, Bybit CEO Ben Zhou has stated that the exchange has sufficient funds to cover the amount stolen, and is still processing withdrawals normally. Nevertheless, the prices of Bit and ETH have both fallen, and Coinbase's stock price - which had risen in the morning on the news of the SEC's action - fell 8% in afternoon trading.
This situation may take days or weeks to become clear, and any ripple effects will only become apparent. In addition to revealing the inherent risks of cryptocurrencies, this hacking attack also shows that the existing protective measures of traditional financial institutions can shield them from the risks of cryptocurrencies. For those banks and traditional securities exchanges that are still under the strict regulation of the SEC and federal banking regulators, this is a consolation.
These companies have been arguing that the cryptocurrency industry now has an unfair regulatory advantage. For example, Nasdaq complained earlier this month when it met with the task force, asking the SEC to set a clear deadline for the "laissez-faire" status of cryptocurrency exchanges. This exchange operator giant had previously expressed a desire to launch a cryptocurrency business. Banks also hope to offer cryptocurrency services to institutional traders and investors, possibly to avoid losing customers interested in cryptocurrencies to cryptocurrency exchanges and trading companies. But they still need to obtain approval from banking regulators to do so.
This week, a heavyweight alliance of bank lobbying groups has asked the Trump administration to find a way to ensure they don't miss out on this game. This series of events not only highlights the vulnerability of the cryptocurrency industry, but also reflects the advantages of traditional financial institutions in terms of regulation and protective measures. As the cryptocurrency market continues to evolve and the regulatory environment takes shape, how to balance innovation and risk will remain a concern worth watching.
