Following weeks of speculation, the SEC has finally gone ahead and filed separate lawsuits against Coinbase and Binance within the same week and many are looking at it as a bad omen for the future of web3 in the United States, but it’s important to note the differences between the two as each lawsuit represents different situations between the two companies. 

However, as different as the two lawsuits are, it is still clear that, under Gary Gensler’s leadership, the SEC has a strong opposition to blockchain technology and the ability of individuals to invest in cryptocurrency. 

Is Binance avoiding law enforcement? 

The first lawsuit filed by the SEC is against Binace.US which the SEC claims is a branch of Binance that is solely used to avoid US law enforcement directed at its parent company, Binance. The SEC claims that the company has skirted regulations since it ceased services in the United States in 2019. 

An investigation was then launched in 2020 before Gary Gensler was appointed as SEC Chairman, suggesting that the lawsuit filed against Binance is less about Gensler’s opposition to cryptocurrency and more so about Changpeng Zhao’s (CZ) shady business practices. 

Is Coinbase selling unregistered securities?

Coinbase, on the other hand, was given more public notice before its lawsuit was filed when the SEC sent them a Wells Notice earlier this year. The notice implied that a lawsuit would be coming their way and gave them ample time to prepare a legal defense.

Since the Wells Notice, Coinbase has actively called on the crypto community to support their efforts for proper crypto regulations and understandings while also exploring new locations to move their company to, primarily looking at the United Arab Emirates due to its lax financial oversight on crypto. 

How are the SEC lawsuits different?

While the two lawsuits look similar on the surface - both companies are centralized exchanges being sued by the SEC - the situation couldn’t be more different. The lawsuit against Coinbase revolves around the lack of proper crypto regulations in the United States and the SEC’s unwillingness to be transparent about what laws they are enforcing while also ignoring clear efforts from Coinbase to establish proper definitions of securities for cryptocurrencies. 

The defense from Coinbase is also preparing to argue that the SEC acted in bad faith as the company was approved by the SEC to go public back in 2021. Coinbase, which has always strived to follow United States law, is fighting against clear corruption from Gensler who was not shy about taking advice from Sam Bankmen-Fried, who operated outside of the United States before FTX’s collapse. 

Binance on the other hand is a much bigger issue that could lead to serious consequences similar to what happened with FTX. The company is being accused of skirting US financial laws with its US branch acting as a shield for CZ. 

While Coinbase has a legitimate argument against the SEC, claiming active effort to work with the committee and following every step possible to remain in good standing, Binance seems to be hiding from much more serious illicit activity that violates US securities laws. 

The future of crypto in the US looks grim

Although lawsuits against both exchanges are not a good thing, there are still silver linings that can be found in both of them. Coinbase’s fight is more so directed at the definition of cryptocurrencies in financial law and relates closely to the lawsuit against XRP while Binance’s lawsuit is related to criminal activity and could flush out more bad actors that have swarmed the web3 industry. 

Despite Binance’s status as the world’s largest crypto exchange, they are not based in the United States and its loss would only be bad for the crypto industry, but not necessarily the United States economy, whereas Coinbase is an American company that has clear incentives to remain active in the United States. If they were to leave the US it would not only hurt the crypto markets but would also result in a brain drain as blockchain developers leave the country to keep their jobs.