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Crypto Exchanges Face More Setbacks in July – Gemini, Binance, Binance.US, and Coinbase Updates

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Takeaways

  • Trading volume on centralized exchanges in Q2 fell to its lowest level in more than two years
  • US SEC lawyers repulse Coinbase's defence that it did not know operations violated securities laws
  • Binance market share is at its lowest this year as the exchange navigates disputes in several jurisdictions
  • Recent court filings indicate Bittrex violated securities laws in Florida ahead of bankruptcy declaration
  • Gemini is yet to recover its Earn Program customer funds locked up by Genesis, which halted withdrawals last November

The monthly crypto trading volume increased in June for the first time since March, buoyed by the market's excitement in response to a series of filings for a spot bitcoin exchange-traded-fund (ETF) product in the US market.

CCData's monthly exchange review noted that the total spot trading rose 16.4% to $575 billion in June, as did the derivatives trading volume, which grew 13.7% to $2.13 trillion. However, the swell in spot trading volume didn't minify an overall drop in the trading volume across the second quarter (Q2), which came to its lowest level in more than three years. July has proved no less hostile to crypto exchanges.

US SEC takes a shot at Coinbase's stance ahead of this week's case hearing

The US Securities and Exchange continued its relentless hassle against Coinbase last Friday as its lawyers rebutted an argument that the exchange was unaware it was in breach of securities laws. In the most recent filing, the SEC also dismissed Coinbase's logic that it did not have the authority to take legal action. The securities markets regulator cleared up ambiguity on the implication of its previous assessment of the exchange's initial public offering in 2021, resolving that its approval at the time did not mean it green-lighted all of Coinbase's business operations.

Lawyers from the SEC further presented that Coinbase knew that federal securities laws would apply to its listings when it adopted a legal framework – from the US Supreme Court – which guides crypto assets falling under federal securities laws. They alleged that the exchange discouraged issuers of cryptocurrencies from making statements that could draw scrutiny. The SEC added that it would fight back against a proposed motion for judgment while challenging two arguments from the exchange.

Coinbase previously argued that an investment contract must entail a formal contract, but in the latest filing, the commission referenced the Howey Test clarifying that it does not. To counter the second argument that investment contracts are only asset sales when traded on secondary markets, the SEC cited its triumph in the case involving LBRY. The lawyers asserted that said transactions on secondary markets could constitute a violation of securities laws. The SEC's latest filings will be reviewed by Judge Katherine Polk Failla of the Southern District Court of New York in the coming days ahead of a Jul 13 hearing.

COIN stock

Notwithstanding the legal setbacks, Coinbase (COIN) stock has recovered from the slump after the SEC brought charges against it. Market data shows COIN has bounced back 56% in the past month and is 134% up year-to-date.

Gemini follows through with the threat of suing DCG after an unfruitful dialogue

Last Friday, Gemini exchange filed a civil lawsuit against Digital Currency Group (DCG) and its CEO Barry Silbert over Genesis insolvency, which set back the exchange as its Earn Program user funds became locked on Genesis after it halted withdrawals. Earlier in the week, Gemini co-founder Cameron Winklevoss proposed in a final offer that DCG repay the debt over five years since it agreed to cover the losses incurred by Genesis when it became insolvent.

Genesis jointly facilitated with Gemini, but the arrangement came to a sudden end when the former took a hit from the Three Arrows Capital and FTX exchange collapses. Winklevoss shared details of the July 7 suit on Twitter, alleging fraud and foul play by Silbert. DCG addressed the allegations, tweeting a statement describing the accusations and legal action as a publicity stunt by the Winklevoss twins to avoid taking accountability for the Earn Program.

Florida regulators accuse Bittrex of violating laws while in operation

In other news, details surfacing last week indicated that Bittrex, which filed for bankruptcy in the US in May, faced enforcement action from Florida state financial regulator before it was declared bankrupt. The court filings made public last Wednesday disclosed that the exchange was accused of failing to separate customer assets and the company’s operating funds. The exchange also failed to maintain a surety bond in the stipulated amount at all times, per the records, which drew on findings from a six-month examination by the Florida Office of Financial Regulation (OFR) and regulators from Maryland, Michigan, and Texas.

Bittrex announced at the end of March that it was halting its operations in the US. Barely three weeks later, the OFR issued a complaint to the exchange on Apr 17. The US SEC also accused the company of violating federal laws by operating an exchange, broker and clearing agency on the same day. The exchange then gave back its Florida money transmitter license on Apr 30 before filing for bankruptcy in Delaware on May 8.

Binance market share contracts amid disputes in Australia, France, Netherlands and the US

Binance's piling woes have been compounded thus far this month by hurdles facing its operations in the US. Federal watchdogs in other jurisdictions have equally accused the exchange of violating regulatory guidelines or running operations without seeking licensing.

Allegations and lawsuits in the US

In the US, Binance is the subject of a lawsuit from the US SEC, claiming the exchange offered derivatives products to US customers through its international platforms without seeking registration. The complaint filed on Jun 5 also narrowed down on the commission's classification of cryptocurrency assets. Still in June, the exchange's US arm Binance.US enforced staff cuts on Jun 15 “as part of a transition and […] preparation for a […] costly litigation” according to documents shared with CoinDesk. The cuts came barely two weeks after Binance.US suspended USD deposits and delisted USD-based trading pairs on its platform.

Keen market observers spotted that Bitcoin traded on a discount of around $3,000 relative to spot prices on the US platform coming off the weekend, while Ethereum prices changed hands $200 lower. A similar incident happened in Australia towards the end of May, which saw the flagship crypto trade at a 20% discount against the AUD on Binance Australia. In Europe, the exchange's euros banking partner, Paysafe, said it would cease its support from Sept. 25.

Trouble in Europe

Last month, Binance said it would withdraw from the Dutch market after an unsuccessful attempt to secure a license from domestic regulators. The De Nederlandsche Bank previously fined the exchange $3 million in July 2022 for operating without a license. Crypto companies looking to operate in the Netherlands must register for a virtual asset service provider (VASP) license whose requirements are based on the domestic Anti-Money Laundering and Anti-Terrorist Financing Act.

Thus far, 36 crypto firms have registered with the Dutch central bank (DNB). The exchange advised its Dutch user base to complete their trades on the platform before Jul 17, after which only withdrawal services will be available. Binance also reportedly withdrew its registration for its Cyprus unit to operate as a crypto service provider on Jun 14. In France, the exchange was investigated by the public prosecutor on suspicion of “unauthorized practice of the profession of virtual assets service provider” and “aggravated money laundering,” according to a Jun 16 Reuters story.

Uncertainty around the exchange's operations in Australia

In Australia, regulators descended on local employees in the AU office last Tuesday as part of a coordinated hunt for internal communication records. Local reports said the Australian Securities and Investments Commission (ASIC) reached out to Binance representatives at the company’s premises. Binance earlier winded down its local derivatives products in April after ASIC revoked its derivatives license acting on a request from the exchange. Though the exchange’s derivatives business took a hit, its spot-trading crypto exchange business remained in operation.

While Binance continues doing business in other jurisdictions, the recent developments have hurt its status. Binance market share has been contracting among exchanges with no USD support, down to 58% from 72% at the start of the year per data from The Block. Meanwhile, several key legal and compliance executives have communicated their departures this month, including the Chief Strategy Officer Patrick Hillmann, Senior Vice President for compliance Steven Christie and General Counsel Han Ng and. CEO Changpeng Zhao shrugged off the exits as no cause for concern in a July 7 tweet addressing the FUD surrounding the same.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.