Written by Yueqi Yang
Compiled by: Block unicorn
Welcome to the official beginning of the cryptocurrency regulatory vacuum. That’s where we are now, as Coinbase, the largest U.S. cryptocurrency exchange, says it has reached an agreement with SEC staff to dismiss a lawsuit alleging the company operated an illegal securities exchange (at least that’s what Coinbase says — we’ll have to wait for the SEC to confirm this news after the commission votes).
Coinbase shares rose 2.2% on Friday morning, U.S. time. The news triggered important progress in the cryptocurrency industry's regulatory progress, especially after the SEC decided to drop its long-running lawsuit against Coinbase, 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 to litigate the case.
It looks like the top financial regulator is pausing enforcement of decade-old securities rules related 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. Basically, cryptocurrency companies are being promised regulatory exemptions 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 are not 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 a hack like this happens, panicked investors may withdraw funds en masse, which could be a fatal blow to an exchange if it doesn’t have enough funds to handle withdrawal requests. Currently, Bybit CEO Ben Zhou said the exchange has more than enough funds to cover the hacked amount and is still processing withdrawals normally. Nevertheless, the prices of both Bitcoin and Ethereum fell in tandem, while Coinbase’s stock price - which had risen in the morning after 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 showed 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.
The companies have been arguing that the cryptocurrency industry now has an unfair advantage in regulation. For example, Nasdaq 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 operating giant has previously expressed its desire to launch a cryptocurrency business. Banks also want to launch cryptocurrency services for large traders and investors, probably to avoid losing customers interested in cryptocurrencies to cryptocurrency exchanges and trading companies. 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. This series of events not only highlights the fragility 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.
