Crypto wrap: Binance, Coinbase and beyond

FIFI PETERS: Bitcoin, Ether, Dogecoin and Ripple are all trading higher now despite what has been an eventful week for the industry with two of the largest crypto exchanges, Binance and Coinbase, facing legal action – perhaps not for the first time – from regulators over in the US for allegedly sidestepping some rules. As I said, not the first time that the industry and regulators have been beefing.

But to explain the latest implications of this round of sparring we are joined by Sean Sanders, CEO and co-founder at Revix. Sean, just what do you make of the news this week and how the SEC (Securities and Exchange Commission) is forcing its hand and whether they are wrong or right?

SEAN SANDERS: Hi, Fifi. Good to be on again. Ah, the crypto space and the number of own goals that have been scored over the last few years, my word! It’s just incredible. But yes, in this round of news you’ve had the SEC, the US’s regulator, come out and gone off at both Binance and Coinbase. They are accusing Binance [with] what seem to be criminal charges, both towards the company and the company’s founder, CZ [Changpeng Zhao].

They made 13 civil charges. They all were made on Monday, and they range from misrepresenting trading controls, to operating an unregistered securities exchange, to effectively setting up an offshore hedge fund that traded customer funds. So some very, very serious allegations.

Read: Binance money trail reveals $70bn flowing through Silvergate, Signature

Coinbase, on the other side of things, seem to be charged more just for operating – and when I say ‘just for operating’ it’s relatively speaking as an unlicensed securities exchange. So it’s a very different sort of approach that the SEC is taking towards both platforms.

But this is bad, again, for the crypto space. Gosh, after FDX last year you would hope that the bad news would stop. But maybe over the long term – and I say maybe – this is what’s needed to actually clean up the space and create a better long-term investing environment for everyday folks investing in the space.

FIFI PETERS: The initial reaction in some of the crypto counters was weakness. But, looking at some of the performances today, we are seeing strengths. So how do we interpret the gains that we are seeing in the likes of Bitcoin and Ether and Ripple today?

SEAN SANDERS: That’s quite interesting. I’ll actually bring that back to our platform at Revix. What we often see when there’s a rather large price decline – because when this news did break you saw about a 7% pullback across the crypto market. (This) was quite an aggressive pullback – a lot of retail investors come into the market. They see this is a ‘buy into the dip’ sort of opportunity.

They buy into the dip and that pushes the market higher.

You get crypto all over headlines on podcasts, people are talking about it, and that brings more people into the space. And then inevitably – I say inevitably, it’s not 100% of the time but most of the time – the market seems to take a bit of a dip afterwards, and the actual information then flows through to the space. And I suspect that’ll happen again. I have no future sort of crystal ball sitting in front of me, but I would imagine that’ll happen.

Read: Bitcoin’s bounce from turbulence sparked by SEC suits signals more gains if history is right

Again, this is a short-term negative for the crypto space. I think it’ll be pretty hard to argue against that. But, as I said, longer term perhaps this is good. Perhaps this is what you need. You need regulators to be coming forward and not necessarily following the same approach that CZ is, but maybe taking the same approach that we’ve seen back home.

I can actually congratulate the FSCA [Financial Sector Conduct Authority] in South Africa; they’ve taken quite a measured approach to dealing with crypto exchanges. They are now implementing regulation, and that’s sort of sector-wide regulation across the crypto space. That’s what we need.

Read:
Regulations mean cryptos ‘can now go mainstream’
D-day for crypto assets has arrived, as FSCA targets scams

FIFI PETERS: So if you are a South African crypto enthusiast right now and you happen to use some of these exchanges, Binance and Coinbase, to do your thing, should you be worried about your exposure, given what is happening legally at these two companies?

SEAN SANDERS: This will likely take quite a long time to play out. I don’t think this will be something that happens over weeks or even months. It’ll probably be closer to years. With Binance maybe there’ll be some developments that happen over the short term, but if you’re going to be prudent, which is the right way to approach crypto investing in general, it probably makes sense to pull your assets off these different crypto exchanges. You can always go back to the platforms when this news is sort of behind us and these lawsuits have been put to bed.

There’s a whole bunch of really great platforms in South Africa. What we always recommend is going and doing due diligence on the platforms. That means actually speaking to the customer support teams, understanding whether there’s proof of reserves being done by these different crypto platforms. I think that’s the biggest thing.

We are all talking about KYC [know your customer], AML [anti money laundering], making sure that there isn’t terrorist financing happening through the crypto space.

That’s important. But the most important thing is actually making sure that these crypto platforms have the assets that they say they have because there aren’t regulators really out there that are pushing for that.

At Revix this has been something that we’ve been pushing for quite some time. You’ve got to make sure that there are customer assets that match liabilities.

FIFI PETERS: Also from my understanding of the developments this week, some of the conversations being had and clarity being sought are around whether tokens are securities or tokens are not securities. I’d like to get your take on what the implications could possibly be if the SEC gets its way and classifies tokens as securities – and whether you think that’s a likelihood.

SEAN SANDERS: The SEC has classified several major cryptocurrencies as securities. It hasn’t classified the likes of Bitcoin and Ethereum and Bitcoin Cash and Litecoin as securities, but there are others such as Polkadot, Ripple and Cardano that have been classified as securities.

This is where the US is acting a little weird right now because you’ve got the commodities regulator, the CFTC [Commodity Futures Trading Commission] effectively saying the opposite in some areas. They’re saying no, there are certain cryptocurrencies that are out there that are actually commodities; and they overlap with the SEC’s guidance there.

So the US needs to come out with a clear regulatory framework that stipulates, hey, these cryptocurrencies are securities, these other cryptocurrencies are commodities. That [would allow] at least the regulators to properly regulate them.

In South Africa we’ve taken a different approach. We’ve said every cryptocurrency, [no matter whether] a stablecoin or a utility token or the likes of Bitcoin, every cryptocurrency is being treated as a security.

So at least you have regulatory clarity, regardless of whether that’s the right clarity. At least you have something that you can move forward with.

So it’ll become quite odd in the US to have to have different regulatory bodies monitoring the same firms. Ideally you want one regulatory body in an asset class, and you can obviously engage with one regulator. So it’ll make things a lot more difficult to operate in the US and I think that’s why you’ll end up seeing a lot of innovation move [away] from the US.

You’re seeing this happen right now – moving to the likes of the UAE, moving to the likes of Singapore. Maybe South Africa even has an opportunity here. Maybe we can attract some of the bigger firms from around the world to set up in South Africa. But it doesn’t seem very likely at this at this point in time.

FIFI PETERS: Why not?

SEAN SANDERS: We’ve got exchange controls which just make it very difficult to operate in the crypto space. If you’ve got to ask the South African Reserve Bank to move funds in and out of a country, and you’re dealing with a decentralised currency, it just makes things really, really challenging.

FIFI PETERS: Okay, so there’s red tape.

Sean, thanks so much for simplifying the story for us. We enjoy your insights as always and we’ll continue to track developments and knock on your door as those developments happen.

Sean Sanders is CEO and co-founder at Revix.