Johannesburg, 29 June 2023: The cryptocurrency landscape was rocked recently when the US Securities and Exchange Commission (SEC) took legal action against Coinbase and Binance – two of the largest crypto exchanges – regarding market capitalisation. This development has sent shockwaves throughout the crypto world and traditional banking systems. Fred Razak, Chief Strategist at CMTrading, shares his thoughts on crypto sector challenges.
What’s Happening?
“While Binance and Coinbase are not US-based companies, they operate within the US through their local subsidiaries, which are required to comply with US standards. Failure to do so, or if there is any improper intermingling of funds with their international entities, puts them at odds with the SEC,” explains Razak.
Razak adds, “If they engage in activities that violate SEC regulations, they will find themselves in court – as happened last week. This development is significant because it signifies that the law is finally catching up with these crypto platforms and currencies in real-time.”
“Until now, these crypto exchanges and currencies have operated largely unnoticed, acting with relative impunity. The fact that a regulatory body is taking action and enforcing the laws will bring much-needed transparency to the market, shedding light on the nature of their activities.”
The series of ups and downs Binance has had in its legal battle with the SEC has seen a recent defeat for the crypto exchange. “In a recent setback, the financial regulator rejected Binance’s request to dismiss the case. In the court session, Judge Amy Berman Jackson ruled in favour of the SEC, concluding that Binance’s claims of libel against the SEC were unfounded, granting the plaintiff a victory, which appeared to dampen the optimism of Binance’s legal defence team compared to previous hearings.”
Again illustrating that the cryptocurrency sector is – or will – encounter hurdles that will demand regulation and compliance, highlighting the pressing requirements for businesses operating in this industry.
The Challenges with Crypto
“The SEC aims to prevent cryptocurrencies from turning into another ‘tulip mania’ in the 1600s, which was one of the most infamous market bubbles and crashes of all time. They are concerned about an unjustified market driven by mania rather than solid economic foundations. I – and renowned finance experts like Nassim Taleb and Nouriel Roubini – have echoed this concern,” says Razak. “Even Warren Buffet recently stated that cryptocurrencies don’t make sense as they lack an economic platform. This doesn’t mean they won’t have one in the future, but they lack centralisation and any real underlying value.”
“Cryptocurrencies differ from traditional forex trading. A country’s GDP backs other currencies. When you trade US Dollars, you essentially trade something representing the United States. While these currencies are no longer tied to the gold standard, they still possess something tangible against which they are measured—the creditworthiness of the issuing country,” he elaborates. “Cryptocurrencies, on the other hand, need to justify their true worth.”
The Impact
“So far, cryptocurrencies haven’t substantially impacted traditional currencies. Bitcoin, for example, experienced a modest decline from $28,000 to $25,000, whereas some anticipated a more significant drop, possibly to $12,000,” says Razak. “The fact that the dip has been less severe than predicted could be an encouraging sign for the long-term future of crypto, and we might even witness an upward trend in the short term.”
“Ultimately, cryptocurrencies are here to stay. It appears that they have become an integral part of the financial landscape. Their full potential is, however, yet to be realised, and the market is expanding rapidly. Moreover, cryptocurrencies offer high liquidity. Although there will undoubtedly be changes, possibly numerous changes, only time will reveal how the industry will evolve and stabilise,” concludes Razak.
The Future
The recent legal troubles faced by Coinbase and Binance serve as a wake-up call for the crypto industry. The actions taken by the US SEC indicate that regulators are now actively scrutinising crypto platforms and currencies, seeking to ensure compliance with existing laws and regulations. This increased oversight will contribute to a more transparent market where the activities of these platforms are closely monitored.
As the crypto industry navigates these legal challenges, it remains crucial for market participants to address concerns surrounding the nature and value of cryptocurrencies. Critics argue that cryptocurrencies lack an economic platform and fail to demonstrate underlying value. The ongoing debate between proponents and sceptics underscores the need for cryptocurrencies to establish credibility and demonstrate their potential to become a reliable and sustainable form of finance.
While cryptocurrencies continue to evolve, their impact on traditional currencies remains relatively limited. However, their growing presence and market liquidity suggest they are poised to play a significant role in the financial landscape. The future of cryptocurrencies will undoubtedly involve further developments, regulatory changes, and market shifts. It is an exciting and transformative time for the crypto industry, and only time will reveal the extent of its impact and the ultimate shape it will take.
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