The world’s largest crypto exchange is operating a “web of deception”…
That’s according to U.S. financial watchdog the Securities and Exchange Commission (“SEC”).
On Monday, it filed a lawsuit against Binance and its CEO, Changpeng Zhao, or “CZ” as he’s known.
And the SEC isn’t just cracking down on Binance. On Tuesday, its lawyers filed a second suit against the largest U.S. crypto exchange, Coinbase.
If you’re invested in crypto… or are considering investing… you may be worried that this is a death blow for the industry.
But as you’ll hear today from world-renowned crypto investing expert Teeka Tiwari, there’s no reason to panic.
The SEC can push more crypto trading offshore. It can hurt some exchanges and advantage others. But it can’t stop people trading crypto.
And it can’t kill crypto.
In fact, Teeka says these lawsuits open the door for more established players to enter the lucrative exchange business.
First, let’s take a closer look at what the SEC is upset about.
The SEC has come down heaviest on Binance…
And worryingly for CZ, the allegations against him and his exchange read an awful lot like those against disgraced crypto boss Sam Bankman-Fried.
You’ll recall that last November, Bankman-Fried’s crypto exchange, FTX, went belly-up.
This came after revelations that customer-owned crypto on FTX were being moved to a hedge fund Bankman-Fried controlled to make its balance sheet look healthier that it really was.
And according to the SEC, CZ is knee-deep in similar shenanigans.
The lawsuit claims that Binance management were able to comingle or divert customers assets “as they please.” This included to a CZ-controlled entity called Sigma Chain.
This allowed CZ to engage in “manipulative trading” that artificially inflated trading volume on the U.S. version of his exchange, Binance.US.
If these allegations are true, it’s not a good look good for Binance. As CZ said in April 2019…
CREDIBILITY is the most important asset for any exchange! If an exchange fakes their volumes, would you trust them with your funds?
It’s a question his customers are now going to be asking about Binance and CZ.
The Coinbase suit is different…
The SEC hasn’t accused it of comingling customer funds or other nefarious FTX-like activities.
Instead, the case revolves around what is or is not a “security.”
In simple terms, a security is an investment contract with a monetary value that’s sold to the public.
And under U.S. law a security is defined as a “contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
Types of securities include stocks (ownership stakes in companies), bonds (loans to companies or governments that are repaid with interest), and options (which represent ownership of stocks).
And crucially, firms dealing in securities must follow U.S. securities law and submit to regulation by the SEC.
Up until now, cryptos haven’t fallen into the category of securities. But in its suit, the SEC named 13 cryptocurrencies that Coinbase deals in as securities. That would mean Coinbase is breaking U.S. securities laws.
And as the SEC suit claims, that means Coinbase has “operated as an unregistered broker … an unregistered exchange … and an unregistered clearing agency.”
In total, these two lawsuits run to more than 237 pages…
But don’t worry, I’m not going to bore you with all the details.
Today, I’ll focus on Teeka’s high-level takeaways… plus an important recommendation he’s making to all crypto investors.
The first point he makes is that this is not the death of crypto. But it could push crypto exchanges offshore. Teeka…
China has already cracked down on crypto exchanges. And everybody just started using a VPN [virtual private network] to disguise where they were accessing the internet from and traded crypto regardless.
If the SEC keeps pushing the way it’s pushing, crypto companies are just going to move offshore. And American investors and traders are going learn about VPNs the same way the Chinese did.
The genie is out of the bottle. People want to trade crypto. And there’s nothing any government can do about it. If they come down hard on crypto in one jurisdiction, companies will simply find other jurisdictions to operate in.
So, why is the SEC pushing so hard?
It’s down to the billions of dollars in fees these exchanges are raking in…
The SEC suit claims that between June 2018 and July 2021, Binance took in at least $11.6. billion, mostly from transaction fees.
That’s 11.6 billion reasons for the SEC to come after it. Teeka again…
It looks to me as though the SEC is trying to clear the way for Wall Street firms to get a slice of those fee revenues. And not only the billions of dollars in fees that Binance makes, but also the hundreds of billions in fees that will be made over the next several years as crypto goes mainstream.
Wall Street missed the boat on crypto in the early days. But it sees those fees, and it wants to dominate that market. It wants to own it, lock, stock, and barrel. Getting rid of foreign players like Binance is a first step in that process.
I’ll have more for you on this story as it develops… including more from Teeka on how to play it as an investor.
For now, it’s important to self-custody your crypto assets…
That means storing them in a wallet app rather than leaving them on an exchange.
If you use a centralized exchange such as Binance or Coinbase, you don’t own the coins you store there. You own IOUs from these exchanges.
That leaves you vulnerable to fraud at the exchange… or an exchange going bankrupt.
It’s more secure to hold your bitcoin in a cryptocurrency wallet, where you control the private keys.
You can find out more about how to do that in the one-page guide Teeka and his team put together for you.
Finally, if you missed Teeka’s crypto event yesterday, make sure to catch the replay…
As I’ve been showing you this week, the best way to maximize your crypto profits is to buy opportunistically when the market is weak.
That’s just basic math… The lower the price you pay to own these assets, the higher your profits will be when you go to sell.
And yesterday, Teeka covered in detail the weakness in the crypto market right now and how you can take advantage of it.
It’s perfectly natural if fear is keeping you out of crypto…
The media is full of headlines proclaiming the death of crypto. But these so-called experts are overlooking a significant crypto catalyst.
You can find out all about it, straight from Teeka, here.
Regards,
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Chris Lowe
Editor, The Daily Cut