The SEC is Suing Coinbase & Binance | Ryan & David

Gary Gensler and the SEC naming a whole bunch of tokens, tokens that you may own, calling them securities in the complaints issued by the SEC. It seems like the SEC and Gary Gensler is attacking crypto this week, an out and out assault. Of course, this comes on the back of months of US government hostility, what we've been calling Operation Choke Point 2.0, and uh we want to

dive into this subject today, see what's going on. There are a few key questions we need uh to to ask and to try to answer today. Um David, where do you want to take this episode? Where should we start?

I think the first big question that everyone is asking is

did is this a surprise or did we see this coming? Uh I saw this uh on on like pop up on my Twitter notifications. SEC sues Coinbase.

And I was like, oh man, today's the day. Uh and I think uh it we should remind bankless listeners and and viewers that six weeks ago, Coinbase was served a wells notice, which means what is a wells notice? A wells notice says, Hey, we are the SEC and we are going to sue you. And Coinbase was like,

Why? Why why are you gonna do that? And they didn't they didn't say anything.

So it's worth noting that like we knew that this was coming. The SEC told Coinbase, hey, we're going to sue you. They didn't tell them why. Um, but not only that, uh, about in the last March, the SEC told a federal record court overseeing the Voyager bankruptcy uh that Binance was uh operating an unregistered securities exchange inside the US, but they had yet to bring charges. Uh and so they the SEC had officially stated that Binance was an unregistered securities exchange. And so both of these things we've had in history, recent history. Uh, so I think there's a lot of fear out there. This is a this is a scary headline. SEC sues Coinbase. SEC sues Binance. SEC is suing the two largest crypto marketplaces that we have. Uh, and so for first cyclose out there who are questioning or having fear, who are scared, I'll say, no, this is this is not a surprise. Uh, everything in these two complaints against Coinbase and Binance, I will say Coinbase and Binance both saw coming and are probably prepared for. So I will say,

This is not a reason to freak out. And probably the industry.

We've got this.

We've got this under control. That's my high level take for the intro of this. How do you feel about that, Ryan?

Yeah, I think I want to unpack that with you, David. And before we maybe get to kind of conclusions or how we're feeling about it, I feel like we should get to kind of the the intro of what actually happened to get people up to speed because it just started um yesterday. Yesterday, the first complaint was filed against Binance. Um the SEC charged Binance and CZ for operating an unregistered securities exchange and for the unregistered sale of securities. So here's the tweet uh that David is displaying right now from SEC at SEC Gov, uh, because of course this is where these things are published these days on Twitter. Today we charge Binance Holdings Limited, US-based affiliate BAM Trading Services, which together with Binance operates Binance.us and their founder, CZ, with a variety of security violations. They also, by the way, include kind of uh a parent tweet, like an influencer tweet. I'm gonna read that quote. We are operating as an effing unlicensed securities exchange in the USA, bro. Binance Chief Compliance Officer. Blown up quote. This was a quote from uh 2018 that somehow the SEC procured via um internal Binance chat log. So, of course, they are making a big deal out of this. And uh, you could see details in the press release. So that's what happened yesterday.

Okay, so that was June fifth. This SEC filed charges against Binance entity.

13 charges, yes, against all of the Binance entities and CZ himself. So we have a pretty comprehensive uh set of charges against Binance.

So we had that to absorb. And then just today, as well, the SEC charged Coinbase for operating an unregistered security exchange broker and clearing agency. Here's the uh the influencer tweet here. Uh here's the blown-up quote coming from the SEC Twitter account. And um, this was, I think, a quote that this was something also posted in the complaint itself. You simply cannot ignore the rules because you don't like them or because you'd prefer different ones. The consequences for the investing public are far too great. While Coinbase's calculated decisions may have allowed it to earn billions, it's done so at the expense of investors by depriving them of the protections to which they are entitled. This is the director of the SEC skewering Coinbase for uh, I guess.

ignoring the rules in his words. And that was the charge that that came this morning and the accompanying uh press release. And David, we have some market reaction from this already. You wanna get into that?

Yeah, so uh Bitcoin when this news broke yesterday was at $26,800, fell all the way down to $25,500. So down about five to six percent. And interestingly, in the last few hours or so, it has recovered back to up to $26,000 and a half dollars. So we're seeing some recovery in in both Bitcoin and Ether. So here's Ether. Ether is actually back up to the price it was uh when this news dropped yesterday about Binance. Uh and so it was at $1,870. It got down to as low as $1780. Uh and now it was up back back up to $1,870. So interestingly, uh, when the Binance news dropped, when SEC announced their lawsuit against Binance, uh Bitcoin dropped about 5%, Ether dropped about 4%, uh, some of the tokens dropped up to 10%.

But since the SEC dropped the news about Coinbase, things have recovered. Uh the blue chips are almost back up to their, to where they were. Um Solana, which is one of the tokens listed as a security in both the Binance and the Coinbase charges, uh, is still down at uh the price that it fell to yesterday at $20. So it's about down about 8%. Uh Adam, uh, the Cosmos token recovered a little bit, but it's still down a little bit south. So the blue chips, Ryan, interestingly, have recovered. Um, the tokens listed, which is a subject of this episode, the tokens listed as securities in both the Coinbase and the Binance suits uh are still um still hammered a little bit. Uh, but it's interesting what the market reacts.

What are those tokens, by the way, David? Can we just list them at the in the intro here? 'Cause I I know we'll get into them a little bit later. But

Yeah, so there's there's a number of them. The big ones are Solana, Cardano, uh, Matic, aka Polygon, Filecoin, Axie, Flow, uh, Definity, and Nier. There are other tokens as well, but these are the big ones that got that named as securities.

So yes, to be clear, the SEC actually named these tokens, called these tokens securities in both of their suits, in both of the complaints uh that they put down. How about how about the price of coin uh shares? Um I heard that took a nosedive after the uh the complaint against Coinbase was released this morning, maybe like down 17% at one point in time.

Yeah, that's right. I don't have that pulled up. Uh actually, I guess I do just kidding. Um coin down 17% uh as of the uh as of this morning um following the SEC lawsuit. So down it started the week at about $66, is now at $48.5. So that's

it's pretty rough. That's a bleeding big bleed of the market cap.

How about some of the other tokens, David? I know uh BNB token was down bad. Of course, BNB was another one of the tokens that was listed as a security, and maybe the SEC has more like to stand on with that one uh as opposed to the others. I'm not sure. But um what it what are we looking at here? What's this chart showing us?

Yeah, so this is all of the tokens that were listed named as securities. Uh so Cardano, Matic, Filecoin, Adam. Uh the best one of the case, Matic, is down 5.5%. The worst one of the case, which is uh Sand, which is I think one of the lowest market cap ones, is like a metaverse token down 10%. Um uh let's see, Filecoin down nine and a half percent, uh Cardano down seven percent. Uh we don't have soul in here, uh, but we do have soul up on the uh the Kraken charts. Uh so uh like I said, Sol is down uh how much? Not too bad. It could be worse.

Yeah. Um

you could

And six and a half percent.

I think the markets are still reeling and trying to figure out um what uh how to react to this. Um one one high-level take I have in the intro before we kind of get into the specifics here. I know there's four big questions we really want to ask in this episode, but one high-level uh take I have is that this is an attack on crypto. So yesterday I was sort of thinking this was um, you know, maybe this in the rest of crypto industries, maybe thinking this was an isolated incident, right? This is maybe maybe the SEC is trying to clean things up on the Binance side of things. They certainly um very explicitly made some comparisons with CZ to SBF and to Binance to FTX, right? And they're certainly using that as much as they could, drawing from that comparison. Um, but one thing I want to draw everyone's attention to that they did in both the Binance uh complaint and then this is that they named specific tokens, they declared specific tokens a security. And to me, that is not an isolated incident, that is not an isolated attack on Binance as a whole and CZ or on a particular set of products at Coinbase. When you name specific tokens that are in kind of top 10, top 25 market cap that have existed for a very long time in crypto, and you declare them securities, sold.

Ada, Matic, Adam,

AXS, that to me is a direct attack on crypto. And here's why I'm reeling from this is I was even looking at Binance and like I trust Binance at this point more than I trust SEC. And I don't put a lot of trust in Binance, David. You know what I mean? Like this agency has lost a ton of credibility in its response to this space. They've not provided clear guidelines. Instead, they're taking this kind of rogue enforcement action. And it seems like Gensler is on a warpath to absolutely tear into crypto to try to.

Kill it in the US to try to damage it, to try to rein it in, to try to completely control it. And that is why this is more than an isolated complaint against two particular exchanges. This to me is an all out assault on crypto, and it couldn't be more clear. Look at these events Monday and then Tuesday, we get a Coinbase attack. It goes without saying that Coinbase has tried its best. I mean, their thing is being like,

You know, the the kid in the class with hand always up up, always answering the question, kind of teachers pet with respect to compliance, and they are getting busted as well. That's why this feels like a an attack on crypto.

It goes straight to the roots of why we are here in this industry. Like one of our favorite podcasts, Ryan, the crypto renaissance. Crypto is powerful because we can now make financial assets. Anyone can make financial assets without asking for permission. Like it or not, that technology, that cat is out of the bag. And now people are experimenting with this ability to produce new tokens, to produce new assets and to deem these things broadly, sweepingly, saying, DASA security, DASA security, data security goes straight to what makes this technology so powerful. And it is exactly what this the is predicted by when this new disruptive technology comes to power. Uh, the incumbents say, like, hey, we're gonna make that illegal. Uh and so this whole like your asset is a security, like the Bitcoiners are saying like Ether is a security. This is not the time to be tribal.

There are the i having the nation state name certain crypto asset securities is not for any one tribe's victory over the other. This is like you are saying, an attack on crypto, our an attack on our fundamental right to

Do finance on the internet and to produce an experiment with new crypto assets. Even though that offends Gary Gensler, that is that is too bad for him. So I've got four questions, Ryan, that I think uh the rest of this show are going to is going to be thematic under four big questions, right? Um, and so the the first one here is uh Binance questions. It's like, okay, so the the suit against Binance, the complaint against Binance has facts and circumstances that is unique from the suit against Coinbase. What about the Binance uh suit is uh alleged? And is this really a case against Binance versus the people? Which is

what which is one perspective to have, or is this Binance versus the law? Who what what are we trying to unpack here? Did Binance offend humans? Did they aggrieve customers? Did they do something wrong to people's monies?

Or did they just violate the law in a bureaucratic way? So that that's a big theme of the whole Binance suit. The big one to me is

why did the SEC allow Coinbase to IPO if they knew that it was an unregistered illegal securities exchange?

Yep.

And if it did know that, why? What is the motivation to going back on that choice now?

So those are the that's the Coinbase question. The third question is everything a security now? Because apparently that uh if you put these two suits together, that is the common denominator is that both Bin Hance and Coinbase are illegal unlicensed securities exchanges.

And they're now naming which tokens are securities now for the first time ever. So that is a development in clarity, even though they're saying everything's a security.

But it's also

On the list.

Ether not on the list, but if that is a topic of discussion, is like, well, is does does Gary Gensler have one more hat that like uh one more trick to pull out of his sleeve? Uh maybe that's the last the last thing here. Uh and then the big question, the final big question is why is the SEC doing this?

Uh they haven't even won their case against Ripple, but now they're taking on both Coinbase and Binance. Like Gary Gensler, he's no idiot. He knows that Coinbase will fight him tooth and nail. Same with Binance. So what what's his edge? Why does he see feel so confident in this? Like, what is his motivation? These are the big categories of questions that I have. Is there anything you want to add to that?

No, I just think we're we're gonna want to conclude as well with where do we go from here? Like what happens next? And how can we, as uh residents of the United States, at least for a subset of bankless listeners or worldwide in whatever jurisdiction you're you're part of, how can we fight back? How can we resist? What can we do as individuals? So we'll conclude with some of those thoughts. David, um, we got to cut to sponsors real quick before we get to the rest of this episode. So let's do that now.

So Ryan uh Gary Gensler was on Squawkbox this morning, uh making his influencer debut, uh, made some statements about the uh two suits that just dropped in the last uh 48 hours. Uh let is let's hear what he's got to say.

Public,

these

trading platforms, they call themselves exchanges, are commingling a number of functions, which in traditional finance, we don't see the New York Stock Exchange also operating a hedge fund,

making markets,

uh, and as we alleged in Binance, having a sister organization, uh

Flooding the platform with transactions called wash trading and the lack of controls on the platforms is really a web of deception,

My God.

along with uh a control person, Mr. Zal, trying to evade US law.

So he was talking about uh Binance, not Coinbase, in that I I'm pretty sure he talks about Binance in in all of these clips. Um, but

It's so much easier for him to talk smack about Binance, by the way, than it is than it is Coinbase, and he knows that and he's using that to his uh advantage, isn't he? So a web of deceptions.

right.

Is what uh deception is what he just called uh Binance right there.