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  • Writer's pictureRodney Alkins

Who will the SEC sue next? God?

The United States Securities and Exchange Commission (SEC) has asked a federal court to issue a temporary restraining order to freeze the US assets of cryptocurrency exchange Binance.

The motion, filed in the US District Court for the District of Columbia on Tuesday, comes a day after US regulators sued Binance and its CEO Changpeng Zhao for allegedly operating a “web of deception”, piling further pressure on the world’s biggest cryptocurrency exchange.

The SEC also sued cryptocurrency platform Coinbase on Tuesday, the second lawsuit in two days following BINANCE, in a dramatic escalation of a crackdown on the industry and one that could dramatically transform a market that has largely operated outside regulation.

What is this Action against Binance really about?

Binance is reportedly facing a probe from the United States Department of Justice, with Reuters revealing the DoJ is mulling charges related to money laundering and sanctions violations. Despite one-third of its users being based in the US, the crypto giant had failed to register with the Treasury Department or implement strict anti-money laundering policies as required by law.

Meanwhile, the Singapore Police Force has reportedly launched fraud investigations into Binance after the country’s Monetary Authority rescinded the company’s application to run an exchange in the country. The platform was banned from operating in the UK by the Financial Conduct Authority last year.

What would happen if Binance collapsed?

According to Jason Deane, a crypto analyst, the collapse of a crypto exchange usually follows several scenarios.

“It usually starts with users reporting withdrawal delays or similar issues,” Deane explains. “As these comments mount on crypto on Twitter, the exchange will normally issue a rebuttal and explain it’s a technical issue, or at least some issue not related to liquidity,” he says. “If the issues continue, there will be a ‘reassuring’ statement that includes the words ‘your funds are safe’ or ‘deploying capital’.”

Late last month, the company’s chief executive, Changpeng Zhao, better known as CZ, tweeted that Binance had pumped $1bn worth of Binance’s BUSD cryptocurrency into the industry in the wake of the FTX scandal. But Deane says that this sort of action often “has the effect of spreading further fear among users who will accelerate their withdrawals until the exchange weaknesses are exposed or the withdrawal runs out of steam.”

After the collapse of FTX, Binance is the biggest crypto exchange by a wide margin. Data from Nansen suggests the platform has almost $57bn worth of crypto in its reserves, more than double the amount held in the next ten biggest exchanges put together.

Binance has gained the Trust of Millions

Binance is the world’s largest exchange by volume and, until now, has enjoyed the benefit of a reasonable amount of trust by users," he says. "A collapse by Binance would destroy any remaining trust in the crypto industry leading to a further sell-off and the end of many crypto projects, possibly including some significant ones.

“It would also lead to regulation which, in my view, is required, but a collapse on this scale could lead to an over-regulated framework that could stifle innovation.” The Bitcoin project, however, will survive and remain “entirely unaffected except in terms of price”.

What is going to happen next?

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