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It's like a Godfather series finale: each film ends quietly with Michael Corlin at a social event, interspersed with scenes of simultaneous planned killings of enemies throughout the film.
This week, the U.S. Securities and Exchange Commission began doing just that, cracking down on illegal cryptocurrency exchanges Binance and Coinbase Global Inc. - No. 1 in the world and No. 1 in America.
While the charges are different, the SEC announcements from day to day, with the exception of a third announcement on Tuesday, regarding the seizure of Binance's US assets, appear to have had the most impact. Like Mr. Corleone in the first movie , The Godfather, "I'm going to finish all the family business today."
The first shot has already been fired in the battle for the largest share in cryptoland, and until that happens, the road ahead for Binance and Coinbase will be bitter and difficult.
The SEC accused the exchange of a series of violations, including improper registration and illegal selling of securities. In particular, Binance has angered regulators even more: Binance is facing 13 charges, including CEO Changpeng Zhao, a Canadian.
The allegations, which the company denies, are the pinnacle of what critics call the wild west of crypto-anarchy.
Coinbase has publicly criticized the SEC several times, accusing it of not being open about what is and isn't allowed with companies and only trying to punish them after they take action.
Coinbase CEO Brian Armstrong tweeted in 2021, “The SEC has recently exposed a lot of improper behavior.
Meanwhile, Binance, which was originally headquartered in China, moved from one jurisdiction to another as the government approved it, eventually declaring that they were "no longer headquartered."
The most widespread, though unsubstantiated, claims by the SEC have been around for years: that Binance's US unit is supposed to be a separate entity to comply with stricter national rules, while Binance is a front to help avoid those rules as a whole.
And for the SEC, this is the moment they've been waiting for.
Current superintendent Gary Gensler has filled the role almost assiduously. With every public appearance, he shows more of his desire: to strictly reclaim this illegal land and make the SEC a default vigilante and policeman. Such an initiative should not be taken lightly.
In addition, the SEC does not need to win this battle in court.
See how the market responds to requests. Bitcoin fell 4 percent and regained all that was lost, yawning to be sure, but Coinbase stock fell 12 percent on the news and is still 8 percent lower on interest.
Even though Binance is privately held, it's affected by public sentiment in another way: something Coinbase shares in common: user exodus. The app undermines the user's trust in the platform. After the SEC lawsuit was revealed, users withdrew $500 million worth of crypto from Binance and $600 million from Coinbase in one day.
Do you remember what happens when users heavily withdraw cryptocurrency from other crypto platforms? The most famous example is probably Bahamas-based FTX and its founder Sam Bankman-Fried. When mass recall reaches critical mass, it overwhelms the platform's ability to comply and things fall apart. It's the scariest word in finance: bank run.
This is clearly not a crypto problem. Looking at what happened to cryptocurrencies, we saw this year with Silicon Valley Bank in the main financing. But since these banking operations were too late, the confidence in the platform is very low. Customers are restless.
And crypto platforms have a feature that banks don't: transactions are public and anyone can see how coins are leaving the platform in real time.
There is little need to allow another bank to launch Binance or Coinbase. This is especially true when SEC lawsuits are expensive. In the year In 2020, the SEC sued Ripple, the company behind the XRP cryptocurrency. Three years later, Ripple has spent $200 million on legal fees and the case is still not over.
No matter what happens in court, the process itself is punishing, and the SEC should know that. How the Binance and Coinbase cases are resolved will define the cryptocurrency industry for years to come.