Crypto: Who is the biggest winner from SEC lawsuits against Coinbase and Binance?

The SEC cracks down on crypto as it leads two separate lawsuits against exchange platforms Coinbase and Binance. Yahoo Finance crypto reporter David Hollerith joins the Live show to detail the exact charges levied against the crypto companies.

Video Transcript

DIANE KING HALL: On Tuesday, the Securities and Exchange Commission sued Coinbase, the US crypto exchange, alleging the company violated federal securities laws. This comes after the SEC also filed a similar suit against Binance on Monday. We've got Yahoo Finance's David Hollerith here with us, digging into what's happening, David take us through the latest.

DAVID HOLLERITH: Yeah. So, you know, these lawsuits have been anticipated in some form for both companies for months. And it's worth pointing out these are crypto's two largest companies. So while this is anticipated, it's a big deal. And the charges for Binance and Coinbase aren't exactly the same.

Coinbase is facing a dynamic that essentially all US crypto exchanges need to deal with, which is whether or not they have listed unregistered securities, at least according to the SEC's framework. And there's room for argument on both sides. And it varies depending on each token. So this is a very gray area.

Coinbase has also said as far back as February that they would defend charges or claims in case the SEC were to levy these. The SEC obviously, sent them a Wells notice last year. And so they've been aware of this for some time.

But with those same charges, the SEC is also alleging that Binance has done some other things such as wash trading using a hedge fund owned by the CEO for market making and co-mingling funds. And we don't to what end. Again, these are all allegations. But if proven to be true, that looks much more akin to something like FTX, which obviously we know was a pretty horrific collapse that occurred in November.

But it's important to point out that the SEC is seeking a preliminary injunctive relief for Binance, which means if granted in the courts, they would freeze at least Binance's US entities' assets. That being said, we're watching the funds flowing out of both exchanges.

And we've seen since Monday when the outlook was particularly bad, that outflows have been tapering off. So they're not as bad as they were Monday. And they have been easing though, in general, the net transfers are still negative, showing that customers are still taking out their funds, but it doesn't look anything like what we saw in the days after FTX. And that's obviously a really important thing to point out.

DIANE KING HALL: Yeah, to your point, though, there do seem to be some differences to some of the allegations between Binance and Coinbase. You're right. It does seem like the allegations against Binance are more serious. And you're right, the SEC also telegraphed this previously.

But I saw the news yesterday, them putting out the brief seeking a court order to freeze Binance assets. Coinbase defending itself on Twitter. Is there any silver lining here with regard to how the SEC is coming after these big players within the crypto space?

DAVID HOLLERITH: Yeah, I mean, I think people, a lot of crypto investors and insiders in the space will take a longer term view about this.

And they will say, you know, I have heard things like, you know, longer term, this sort of brings up sort of the clash that crypto has had with the SEC, sort of to the courts, which is ultimately maybe not the ideal way it would be decided but it's a way to, you know, force an outcome. And that would mean regulatory clarity for crypto investors and entrepreneurs in the space. So that would seem like a good thing.

Another silver lining, I guess, we could point out is that Bitcoin is largely considered to be a commodity. There's no written law about this, but just based on public comments or personal views from the SEC Chair Gary Gensler, as well as the CFTC chair, that seems to be the case. And I've never seen an argument that would point out that Bitcoin is a security.

So Bitcoin investors do appear to be in the clear more than others. And we have seen within the industry, Bitcoin seeing more flows. Its market cap relative to the total crypto market cap has been spiking since yesterday morning.

DIANE KING HALL: All right. Well, we will certainly continue to watch this crackdown on crypto and see where this lands, Coinbase and Binance. David Hollerith, thank you so much for breaking that down for us.