Since Gary Gensler became Wall Street's top cop two years ago, his message to cryptocurrency companies has been consistent: He would do all it takes to tame a world he likens to "the Wild West."
This week, he delivered on that threat, big time.
The Securities and Exchange Commission unveiled a barrage of charges against two of the world's largest crypto exchanges — Coinbase and Binance — kicking off a legal battle that will help define the future of cryptocurrencies.
Here's what to know about the fight, and why it's so important.
What are these two cases about?
They stand to answer a critical question: Who gets to police crypto companies?
Although Binance and Coinbase may not be household names, they are well known in the world of crypto. Billions of dollars worth of digital assets change hands on these platforms every day, and they have customers all over the world.
Yet crypto, since its beginnings, has existed in a regulatory gray area. After all, most of the current finance rules were set before cryptocurrencies came into being.
A turf war continues, between the SEC and another federal regulator, the Commodity Futures Trading Commission (CFTC), over which agency has the power to oversee these assets and the broader sector.
Gensler believes most cryptocurrencies are securities, and as such, current laws give his agency the power to regulate them, and the sites and apps on which they are bought and sold.
Although these two lawsuits are different in many ways, at their heart, Coinbase and Binance are both being accused of failing to register their exchanges with the SEC.
That's something that crypto companies have fought tooth and nail. By design, crypto is supposed to operate outside of the traditional financial system.
What many crypto companies want are new rules of the road that are crypto-specific.
If the SEC prevails in the courts, it could potentially force crypto companies to register with the SEC, which would be a sea change.
"I think these cases will be fundamental to the shape of crypto regulation," says Timothy Massad, who is the former chairman of the CFTC.
So what happens now?
In many ways, this is an existential fight for these companies.
Binance, perhaps, faces the most serious allegations, including that the exchange and its CEO, Changpeng Zhao misled investors about the exchange's ability to detect market manipulation, and it misused customer funds.
Meanwhile, Stephen Glagola, an analyst at TD Cowen who covers Coinbase, which is a publicly traded company, says Coinbase could emerge from this fight "a materially different business versus today."
Both of these companies have resolved to fight the charges against them, and they're preparing for the long haul.
"We are operating as business as usual," says Paul Grewal, Coinbase's chief legal officer. "These cases sometimes aren't resolved not only for many months, but many years."
The longer this drags out, the more it could color how crypto investors see these two companies. And indeed, in the days since these lawsuits were announced, there have been significant outflows from Coinbase's and Binance's exchanges.
"This is going to affect people's attitude toward trading, and Coinbase is going to have to think about that," says Massad. "Can it really afford to just fight this out, or does it have an incentive to try to come up with a settlement?"
What this means for the crypto world
It's not just Coinbase and Binance. The lawsuits are also threatening to create a lot of uncertainty and further erode confidence in the entire sector.
Coinbase and Binance join a list of crypto companies against which the SEC has taken action, including Kraken, Genesis and Gemini.
But Coinbase and Binance don't just run exchanges, they also operate as brokerages and clearing agencies. This is something you don't see in traditional finance, and it's a model of which Gensler is skeptical.
In crypto, sentiment is critical, and the industry has had a rough ride since last year, with the collapse of FTX.
Its now-former CEO Sam Bankman-Fried faces civil charges from the SEC and the CFTC, and the Justice Department has also brought criminal charges against him.
The spectacular collapse of FTX ushered in a so-called "crypto winter" that has yet to dissipate.
"I think that sentiment will likely continue to be somewhat negative around crypto," Glagola argues, noting volumes — the amount of crypto being traded — have declined since FTX collapsed, and they continue to deteriorate.
What could emerge finally?
There is an argument that this fight is good, or at least it will be constructive — in that it is likely to lead to more clarity about regulations.
"This is an industry that I think can be characterized by a lack of transparency," Giagola says. "There's not a lot transparency."
It's not just the courts that may help define the future of cryptocurrencies. Coinbase and other crypto companies, as well as the SEC, want Congress to get involved by passing laws for the sector, though action from lawmakers may take a while.
Cryptocurrencies such as Bitcoin have surged in popularity, although they are still nowhere near as widely held as stocks.
A recent research report estimated that 12% of the population owns crypto investments, a small fraction compared to how many households own stocks, for example.
More transparency and confidence in the sector could ultimately bring more investments into cryptocurrencies eventually.
But the road there is likely to be messy.
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