The Binance vs. SEC is a landmark case in the world of cryptocurrency and digital assets, involving a tussle between one of the largest crypto asset exchanges in the world and the Securities and Exchange Commission (SEC). What exactly is this case about and what lies at the center of this tussle?
The central issue in this dispute is the vexed question of whether digital assets can be considered securities. The complex ambiguity in the relationship between digital assets, investment contracts, regulatory oversight, and the latest rulings is at the core of this legal battle and can have a big impact on the future of cryptocurrencies.
Using the Terra lawsuit as a benchmark, the SEC has cited this in their legal tussle with Binance. The SEC has contended that, in its previous rulings, they have designated certain digital assets as securities and have employed the Howey Test as a benchmark to identify if any digital asset constitutes an investment contract.
The Howey test consists of four benchmarks to identify if any asset qualifies as an investment contract.
The four important benchmarks are-
- There is an investment of money.
- The investment must produce profits or there must be an expectation or high chance of profits.
- The money which is invested must be in a common enterprise.
- The profits which is accrued must be due to the efforts of a third party.
If any asset amounts to an investment of money with a decent chance of profits it can be designated as securities and will come under the ambit of the Securities Act of 1933 and the Securities Exchange Act of 1934, requiring disclosure and registration.
Binance’s CounterAttack
Binance and its US branch and co-founder Changpeng “CZ” Zhao have issued a strong rebuttal and said that the Terra lawsuit is set in completely different circumstances and cannot be applied to the crypto exchange’s operations. They further argue that the SEC is misconstruing the previous rulings and stretching Howey’s Test much beyond its purview and jurisdiction.
However, the point of argument is not digital assets but the interpretation of ‘investment contracts’ and their relevance to cryptocurrency dealings. Binance maintains that it functions as an exchange, providing access to Blockchain technology, and should not be seen as a promise to yield financial returns.
Probable Outcomes
The outcome of the case will undoubtedly have an enormous impact on the cryptocurrency world. A ruling favorable to the SEC could mean greater regulatory authority for the SEC and how digital currencies will be regulated in the future. On the other hand, a decision in favor of Binance will significantly strengthen the cryptocurrency sector and will offer more credibility and stability.
As the legal battle heats up, the crypto sector is anxiously waiting for the final results of the legal tussle. The ruling will redefine digital assets classification and cryptocurrency regulations. The crypto sector is always in a state of dynamic flux and highly volatile. A clear judgment could remove a lot of ambiguity and unpredictability in the sector.
The Root Behind Binance vs. SEC Lawsuit Case
The Terra Luna crash was one of the biggest and most spectacular crashes in 2022. The UST, which was deemed a stablecoin because its value was pegged to a currency, was believed to be much less volatile than other crypto assets.
However, as reported by Forbes, in the intervening period in between May 9-13, 2022, both UST and Luna crashed by 91% and 99.7%, respectively, and an estimated $60 billion wipeout. Two lawsuits are presently up for hearing in the US District Court, California, against Do Kwon and others related to TerraForm Labs and Binance US.
The SEC has stated that the UST and Luna, being pegged with a real currency, are deemed securities and fall under the purview of the Howey Test benchmark. However, Binance has said that it is a crypto exchange and hence only provides services.
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