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Many cryptocurrencies unexpectedly rose today after the Securities and Exchange Commission (SEC) continued its crackdown on the industry.
Since late afternoon yesterday, the price of the world’s largest cryptocurrency, Bitcoin (CRYPTO:BTC), traded 4% higher as of 3:12 p.m. ET today. Meanwhile, the price of the world’s second-largest cryptocurrency, Ethereum (CRYPTO:ETH), traded 3.7% higher, while the price of the meme token Dogecoin (CRYPTO:DOGE) was up 7.5%.
Yesterday, the SEC sued the world’s largest crypto exchange, Binance, on 13 charges. Today, the SEC dealt another blow to the industry, suing the large crypto exchange Coinbase Global.
Image source: Getty Images.
Given the prominence these two companies hold in the industry, one would have thought that most cryptocurrencies would be headed lower today. But the unpredictability of the crypto industry reigned supreme.
“Historically, every time regulators have stepped in to clean up crypto, it has ultimately been a good thing for the industry,” Bitwise’s Asset Management Chief Investment Officer Matt Hougan told Barron’s. “Short-term pain for long-term gain.”
Investors may see these lawsuits as a way to provide much-needed regulatory clarity in an industry that has largely been operating in the grey. A big issue in the industry and for the SEC has been whether or not cryptocurrencies should be treated as securities and therefore under the purview of the SEC or as commodities and therefore regulated by the Commodity Futures Trading Commission (CFTC).
The SEC’s lawsuit today certainly seems to take aim at this issue. The SEC alleges that Coinbase has been operating as an unregistered national securities exchange, broker, and clearing agency. It also claims Coinbase did not register its crypto staking program with the SEC.
SEC Chair Gary Gensler said in a statement that Coinbase “commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions.” Gensler added that: “In other parts of our securities markets, these functions are separate. Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC.”
Following the charges against Binance, investors have reportedly pulled more than $791 million from the exchange over the last 24 hours. However, as of a few hours ago, Coinbase had reportedly only seen a small amount of outflows.
Given the SEC’s moves over the last few days, I would have expected Bitcoin and the rest of the crypto industry to have a much tougher day, although, as mentioned above, crypto investors don’t seem to be overly concerned about regulation.
It will be interesting to see what might happen to Binance and Coinbase as a result of these charges and I do begin to wonder about liquidity issues, given how big these two players are and what has happened in recent months, so I wouldn’t necessarily read too much into this rally.
But longer term I still like Bitcoin and Ethereum and think some exposure is certainly worthwhile. I would, however, avoid most altcoins, especially meme tokens like Dogecoin.
Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.
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