Note: this article was originally published by Collective Shift on 6th June 2023. Since this time, some of the assets mentioned have partially recovered. Conduct your own research before investing.
The world’s largest crypto exchange was sued by the U.S. Securities and Exchange Commission (SEC) on Monday, causing prices to fall. Below, I explain the implications for long-term investors.
Key Takeaways
- The SEC charged several Binance entities with violating a slew of U.S. laws.
- This is all over the news because Binance is the world’s largest crypto exchange and is known for, among other things, steering clear of U.S. authorities.
- It’s a significant but unsurprising development. It’s been public knowledge for years that multiple U.S. agencies were investigating Binance.
On Monday, the SEC filed a lawsuit against Binance. The regulator made a string of damning allegations related to matters such as operating unregistered exchanges, misrepresenting trading controls, and selling unregistered securities. (For anyone interested, here is the 136-page complaint filed by the SEC.)
Worth noting: Civil complaints are usually written in the most damning terms possible and represent the best possible case from the perspective of the plaintiff; in this case, the SEC. At this stage, these are allegations and we do not know whether they will be found by the court —and we may never know.
Déjà vu: This lawsuit comes roughly 10 weeks after the CFTC charged 3 of Binance’s many corporate entities and its CEO for violating several U.S. laws.
Response from Binance: Shortly after Monday’s filing, Binance said it was “prepared to fight it to the full extent of the law” and “intend[s] to defend [its] platform vigorously.”
Prices Tumble, Particularly Those Alleged To Be Securities
The crypto market unsurprisingly tumbled after the news. A few hours after the news, the price action of the following major cryptocurrencies was as follows: BTC (-5.0%), ETH (-3.4%) and BNB (-8.7%).
Notably, in page 85 of the filing, the SEC charged Binance with selling the following cryptocurrencies that it alleges are securities: BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI. Most of these cryptocurrencies, barring BNB and BUSD, have fallen by 10–15% since the lawsuit was filed.
Excerpt from page 85 of the SEC’s complaint outlining the cryptocurrencies it feels are securities (Source)
Why Our Investment Strategy Is Unchanged
This lawsuit isn’t surprising. In fact, we’ve flagged further charges against Binance as a potential price-sensitive event in the last 3 instalments of our Monthly Market Reports.
For me, this news hasn’t changed my long-term outlook. I’ll repeat what I said in my CFTC vs Binance post, as my prediction and sentiment regarding SEC vs Binance is basically the same: “It wouldn’t surprise me to see a settlement announced in which Binance is ordered to pay a civil monetary penalty. Whilst this news is significant, it doesn’t affect my investment outlook for BTC and ETH.”
Sure, prices can fall further, but I feel like most people who were going to sell after negative news have had ample opportunity to do so in the past 15 months. If BTC did fall to $20,000 in the following months, I struggle to see myself losing sleep in 5 years’ time lamenting my decision to buy at today’s price of $26,000.
When investing, it can be helpful to consider the spectrum of possible outcomes before making decisions. In today’s case, I think it’s most likely that Binance and the SEC will settle, with Binance agreeing to pay a large penalty and possibly accept some restrictions to its U.S. trading platform. All things considered, this would be a good outcome for markets.
But it’s critical to consider how things could get worse. With respect to Binance, a doomsday scenario would be something like this: a court rules in favour of all of the SEC’s charges, Binance is found to be running an FTX-esque operation, and millions of users lose funds.
In this scenario, I’d expect the crypto market and industry to enter a nuclear winter that spans several years, only to reemerge later this decade. BTC would fall towards $10,000 and ETH towards $250. There would be mass industry layoffs, and the world would largely forget about crypto for at least 5 years.
This is a possibility. However, I think it’s extremely unlikely, but that’s just my opinion, as I have no insight into the internal operations of Binance. So, for now, I await SEC vs Binance to unfold and I have it as one of many factors that affects my decision-making when investing.
Reminder: Store Your Cryptocurrency In a Wallet
Today’s news is yet another timely reminder that if you hold cryptocurrencies on exchanges, they are not yours until you send them to an address you control. strongly advise setting up a crypto wallet if you haven’t already.
Research-Backed, Crypto Insights That Save You Time
Collective Shift are pleased to to offer you a complimentary one-on-one strategy call with our founder and CEO, Ben Simpson. Collective Shift aims to provide research and analysis to help educate its members.
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