SEC's move against Coinbase shows regulatory vacuum in cryptocurrencies

Translated by: Block unicorn

Welcome to the official beginning of the cryptocurrency regulatory vacuum. That's where we are now, as Coinbase, the largest cryptocurrency exchange in the United States, said it has reached an agreement with the staff of the U.S. Securities and Exchange Commission (SEC) to dismiss the lawsuit accusing the company of operating an illegal securities exchange (at least that's what Coinbase said - we'll have to wait for the SEC to confirm this news after the committee votes).

Coinbase shares rose 2.2% on Friday morning in the United States last week. The news triggered an important development in the regulation of the cryptocurrency industry, especially after the SEC decided to drop its long-running lawsuit against Coinbase, and the cryptocurrency industry seemed to have entered a regulatory vacuum. Coinbase CEO Brian Armstrong said in a post on X that the dismissal means Coinbase will not pay any fines or make any changes to its business, adding that the company has spent about $50 million litigating the case.

It looks likethe top financial regulator is pausing enforcement of its decade-old securities rules as they relate to cryptocurrencies as it waits for Congress to come up with new rules — if Congress passes any at all. And those congressional deliberations are likely to drag on for a while. Essentially, cryptocurrency companies are being promised regulatory relief while Trump’s crypto task force tries to figure out where the industry should go next.

While all this sounds optimistic for the cryptocurrency industry, things aren’t all rosy. Today we saw some reminders of the risks facing cryptocurrencies: just two hours after Coinbase released the good news, Bybit, the world's third-largest cryptocurrency exchange, confirmed that it had suffered a hacker attack of more than $1 billion, the largest hack in the history of cryptocurrency.

When such a hack occurs, panicked investors may withdraw funds on a large scale, which may be a fatal blow to the exchange if the exchange does not have enough funds to cope with the withdrawal requests. Currently, Bybit CEO Ben Zhou said that the exchange has more than enough funds to cover the hacked amount and is still processing withdrawals normally. Despite this, the prices of Bitcoin and Ethereum both fell in succession, while Coinbase's stock price - which had risen in the morning after the news of the SEC's action - fell 8% in afternoon trading. It may take days or weeks for this situation to become clear and for any ripple effects to become apparent. In addition to revealing the risks inherent in cryptocurrencies, the hack also shows that the safeguards in place at traditional financial institutions can protect them from the risks of cryptocurrencies. This is some comfort to banks and traditional stock exchanges that are still strictly regulated by the SEC and federal banking regulators. These companies have been arguing that the cryptocurrency industry now has an unfair advantage in terms of regulation. Nasdaq, for example, complained when it met with the task force earlier this month, asking the SEC to set a clear deadline for this "laissez-faire" state of cryptocurrency exchanges. The exchange operator giant has previously expressed its desire to launch a cryptocurrency business. Banks are also looking to launch cryptocurrency services for large traders and investors, possibly to avoid losing customers interested in cryptocurrencies to cryptocurrency exchanges and trading firms. But they still need approval from banking regulators to do so. This week, a heavyweight coalition of bank lobbying groups asked the Trump administration to find ways to ensure they don't miss the game. The series of events not only highlights the vulnerability of the cryptocurrency industry, but also reflects the advantages of traditional financial institutions in terms of regulation and protection measures. As the cryptocurrency market continues to develop and the regulatory environment gradually takes shape, how to balance innovation and risk in the future remains a question worth paying attention to.