The crypto market is again under the spotlight. This time it is due to the US Securities and Exchange Commission (SEC) lawsuits against leading crypto exchanges Coinbase and Binance and increasing scrutiny. This has led to questions, debates, and theories about the SEC’s motives.
One such theory suggests that the SEC is trying to undermine these crypto giants. The goal is to pave the way for Wall Street to assert dominance over the cryptocurrency market.
Wall Street Giants Enter the Crypto Market
In the current digital era, some of the finance industry’s most recognized names, such as Standard Chartered, Nomura, and Charles Schwab, are building cryptocurrency trading platforms.
Gautam Chhugani, Senior Analyst at Bernstein, believes fund managers will be more inclined towards their trusted brands. This contrasts with trusting opaque crypto exchanges like Binance and Coinbase that currently rule the industry.
“The large, pedigreed, traditional institutional investors definitely prefer dealing with counterparties who they know have been in existence for years and have been regulated in the traditional sense,” said Chhugani.
The push from Wall Street comes amid a tumultuous period for the cryptocurrency market. Several crypto exchanges and lending platforms, including FTX, Celsius, and Voyager, collapsed last year, highlighting the inherent risks of these largely unregulated businesses.
Against this backdrop, traditional financial institutions hope that their brand reputation and industry expertise, untouched by the recent wave of crypto scandals, will lure fund managers to their new platforms.
“Lots of institutional players are testing different bits of activity to test the waters, build a bit of experience in the market but also . . . making sure they have an option for further growth avenues,” said Alexandre Birry, Chief Analytical Officer at S&P Global Ratings.
Regulatory Storm Hits Major Crypto Exchanges
Recent actions taken by the SEC against major crypto exchanges Binance and Coinbase are raising concerns in the crypto space.
The SEC charged Binance, the world’s largest crypto exchange, and its founder, Changpeng Zhao, with multiple regulatory violations. These include allegations of co-mingling billions of dollars of user funds. Additionally, subverting their own controls to allow high-net-worth US investors to continue trading on Binance’s unregulated international exchange.
“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” said Gary Gensler, the SEC’s chairman.
On the other hand, the SEC sued Coinbase, asserting that the company was acting as an unregistered broker and exchange. According to the regulator, Coinbase’s flagship prime brokerage, exchange, and staking programs violate securities laws.
“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions,” affirmed Gensler.
The SEC lawsuits against Binance and Coinbase have instigated multiple debates. Indeed, some wonder whether the regulator intends to put the crypto exchanges out of business to pave the way for Wall Street to take over.
The Power Play in the Crypto Industry
The entry of traditional financial institutions into the crypto market could be a game-changer. These institutions leverage their industry expertise to create companies that provide a safer, more reliable alternative to the current crypto exchanges.
They are building their infrastructure along more traditional lines, distancing themselves from the opaque and often scandal-hit crypto industry.
Prominent broker Charles Schwab and market makers Citadel Securities and Virtu Financial, are part of the consortium backing EDX Markets. Concurrently, UK-based financial institution Standard Chartered supports the exchange Zodia Markets and the custody service provider Zodia Custody.
“They wanted to build an exchange they felt comfortable trading on,” said Jamil Nazarali, CEO of EDX Markets
This strategic shift could potentially disrupt the dominance of incumbent crypto exchanges such as Binance or Coinbase. Should Wall Street-backed crypto companies succeed in wooing institutional asset managers, a new era of transparency, regulation, and stability could dawn on the crypto industry.
The Future of the Crypto Market with Wall Street
The SEC lawsuits against Binance and Coinbase and Wall Street’s entry into the crypto space may indicate a shift in the crypto industry.
With these actions, the SEC seems to be aiming to regulate the crypto industry more stringently. This could pave the way for traditional financial institutions to take a more significant role.
“The infrastructure being built by large institutions is markedly different to the crypto industry’s original structure. Wall Street executives are keen to separate business units such as trading from custody, as a way to reduce risk and potential conflicts of interest,” reported the Financial Times.
However, it is too soon to say whether these traditional financial institutions can successfully break into the crypto industry. Let alone pose a genuine threat to the dominance of incumbent crypto exchanges.
What is certain is that Wall Street’s entry into the crypto market and the regulatory actions against major crypto exchanges are shaping the industry’s future. The ongoing developments suggest that a more regulated and transparent industry may be on the horizon.