SEC's Coinbase Move Signals Regulatory Vacuum for Crypto
Yueqi Yang, The Information
Translated by Block unicorn
Welcome to the official start of the crypto regulatory vacuum. This is where we find ourselves, 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 in 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, as the crypto industry seems to have entered a regulatory vacuum, especially 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 regulatory agency is temporarily suspending the enforcement of securities rules that have been in place for a decade in relation to Bit, as it waits 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, 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've just seen 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 afternoon trading.
It may take days or weeks for the full picture to emerge and any ripple effects to become apparent. This hack not only exposes the inherent risks of Bit, but also shows that the existing protective measures of traditional financial institutions can shield them from Bit risks. This is a comfort for banks and traditional securities exchanges that remain under the strict regulation of the SEC and federal banking regulators.
These companies have long argued that the Bit industry currently enjoys an unfair regulatory advantage. For example, Nasdaq complained earlier this month when meeting with the task force, asking the SEC to set a clear deadline for this "laissez-faire" state of Bit exchanges. This exchange giant had previously expressed a desire to launch 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 firms. 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 concern worth watching.
