SEC Crypto Crackdown Adds Urgency for U.S. Lawmakers to Produce Regulatory Framework This Year: JPMorgan

The U.S. Securities and Exchange Commission (SEC)’s lawsuits against Binance and Coinbase highlight the need for U.S. lawmakers to come up with “a comprehensive framework on how to regulate the crypto industries and the relative responsibilities of SEC vs the Commodity Futures Trading Commission (CFTC),” JPMorgan (JPM) said in a Thursday research report.

The SEC thinks most cryptocurrencies should be classed as securities, and therefore, most crypto companies and trading should fall under its supervision and comply with regulatory frameworks that are currently applied to other securities, the report said.

This isn't a “straightforward legal case,” and it is unclear which cryptocurrencies would be classified as securities, analysts led by Nikolaos Panigirtzoglou wrote. The SEC vs Ripple case is a reflection of this lack of legal clarity.

The regulator said last week it was suing Binance, Binance founder and CEO Changpeng “CZ” Zhao and the operating company for Binance.US on allegations of violating federal securities laws. A day later it sued rival exchange Coinbase (COIN) on similar charges.

The moves are “creating more urgency for U.S. lawmakers to come up with a comprehensive regulatory framework by this year,” JPMorgan said.

Until this happens, crypto activity will likely continue to move outside the U.S. and into decentralized entities. Crypto venture capital funding will also likely remain subdued, the bank said.

If the SEC’s stance is confirmed by lawmakers, Coinbase, Binance.US and other U.S. exchanges would have to register as brokers and most cryptocurrencies would be treated as securities, the note said.

While this could be more “onerous and costly” for the industry, it would bring some positives because crypto markets would be properly regulated and offer more transparency and investor protection, the note said.

Last week’s SEC actions has created uncertainty about a number of other layer 1 tokens that are alleged to be securities, creating an advantage for bitcoin (BTC) and ether (ETH), the bank said.

Read more: Crypto Tokens’ Status as Securities or Commodities Is Key to SEC’s Binance, Coinbase Suits: Bernstein