Welcome to the official start of the crypto regulatory vacuum. This is the situation we find ourselves in, as the largest Bit cryptocurrency exchange in the US, Coinbase, has stated that it has reached an agreement with the staff of the US Securities and Exchange Commission (SEC) to dismiss the lawsuit accusing the company of operating an illegal securities exchange (at least that's what Coinbase is saying - we'll have to wait for the SEC to confirm this news after a Commission vote).
On Friday morning US time last week, Coinbase's stock price rose 2.2%. This news has sparked important progress in the crypto industry's regulatory landscape, especially as the crypto industry seems to be entering a regulatory vacuum after the SEC decided to drop its long-standing lawsuit against Coinbase. Coinbase CEO Brian Armstrong said in a post on X 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 that have been in place for a decade in relation to Bit, as they await 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, Bit companies have been promised regulatory exemptions while Trump's Bit task force tries to figure out the industry's next steps.
While all of this sounds optimistic for the Bit industry, things are not all rosy. We saw a reminder of the risks facing Bit today: just two hours after Coinbase released the good news, Bybit, the world's third-largest Bit exchange, confirmed that it had suffered a hack of over $100 million, the largest hack in Bit history.
When such hacks occur, panicked investors may withdraw en masse, and if the exchange does not have enough funds to meet withdrawal requests, this could be fatal to the exchange. For now, Bybit CEO Ben Zhou says the exchange has enough funds to cover the hacked amount and is still processing withdrawals normally. Nevertheless, the prices of Bit and Ether 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 the afternoon.
It may take days or weeks for the situation to become clear, and for any ripple effects to emerge. In addition to revealing the inherent risks of Bit, this hack also shows that the existing protective measures of traditional financial institutions can shield them from Bit risks. For banks and traditional securities exchanges that remain under the strict supervision of the SEC and federal banking regulators, this is a consolation.
These companies have been arguing that the Bit industry currently 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 this "laissez-faire" state of Bit exchanges. This exchange operator giant had previously expressed a desire to launch a Bit business. Banks also want to offer Bit services to institutional traders and investors, possibly to avoid losing customers interested in Bit to Bit exchanges and trading companies. But they still need approval from banking regulators to do so.
This week, a heavyweight coalition 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 fragility of the Bit industry, but also reflects the advantages of traditional financial institutions in terms of regulation and protective measures. As the Bit market continues to evolve and the regulatory environment takes shape, how to balance innovation and risk will remain a question worth watching.
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