On Tuesday, the top U.S. securities regulator sued cryptocurrency platform Coinbase, the second major crypto exchange to be sued in two days, dramatically escalating a crackdown on the industry that could reshape a business that has mainly operated outside regulation.

On Monday, the SEC targeted Binance, the largest bitcoin exchange. The SEC calls Binance and CEO Changpeng Zhao a “web of deception.”

The cases might change the crypto market by asserting the SEC’s jurisdiction over the industry, which has claimed for years that tokens are not securities and should not be regulated.

“The two cases are different, but overlap and point in the same direction: the SEC’s increasingly aggressive campaign to bring cryptocurrencies under the jurisdiction of the federal securities laws,” said Ford O’Brien Landy partner Kevin O’Brien, a former federal prosecutor. The SEC has not previously taken on such major crypto players.

“The cryptocurrency industry will change if the SEC wins either case.”

The SEC filed a case in Manhattan federal court alleging that Coinbase has profited billions of dollars as a crypto middleman since at least 2019 by dodging investor protection disclosures.

The SEC said Coinbase traded at least 13 equities without registration, including Solana, Cardano, and Polygon.

Nansen thinks that Coinbase lost $1.28 billion in customers after the case. After plunging as high as 20.9%, Coinbase Global Inc (COIN.O) shares finished at $51.61, down $7.10. 46% growth this year.

Coinbase’s general counsel, Paul Grewal, stated the business will continue operations and has “demonstrated commitment to compliance.”

Oanda senior market analyst Ed Moya said the SEC “looks like it’s playing Whac-A-Mole with crypto exchanges,” since most exchanges provide a variety of currencies that function on blockchain protocols targeted by regulators, “it seems like this is just the beginning.”

Bitcoin has benefited from the crackdown paradoxically.

Following the Binance suit, bitcoin rallied over $2,000, surpassing the previous day’s high. At 0410 GMT, it traded below $27,000.

“The SEC is making life nearly impossible for several altcoins and that is actually driving some crypto traders back into bitcoin,” said Oanda’s Moya.
SEC Chair Gary Gensler has long declared token securities and has slowly asserted its power over the crypto sector, initially focusing on token sales and interest-bearing crypto goods. It now targets unlicensed crypto broker-dealers, exchange trading, and clearing operations.

Some crypto businesses are licensed as alternative system trading systems, which brokers use to trade listed securities, but none are stock exchanges. This year, the SEC sued Beaxy Digital and Bittrex Global for failing to register as exchanges, clearing houses, and brokers.

“The whole business model is built on noncompliance with U.S. securities laws and we’re asking them to come into compliance,” Gensler told CNBC.

Crypto firms argue that tokens are not securities, that the SEC’s rules are confusing, and that the SEC is overreaching. After the crackdown, numerous companies increased compliance, shelved items, and expanded abroad.

The Blockchain Association’s CEO, Kristin Smith, rejected Gensler’s oversight. “We’re confident the courts will prove Chair Gensler wrong in due time,” she said.

Coinbase, founded in 2012, had over 108 million customers and concluded March with $130 billion in customer crypto assets and funds. Transactions contributed 75% of its $3.15 billion net revenue last year.

Tuesday’s SEC action seeks civil fines, restitution, and injunctions. On Monday, the SEC accused Binance of exaggerating trade volumes, diverting user funds, inappropriately commingling assets, neglecting to restrict U.S. customers, and misrepresenting its controls.

Binance vowed to fight the case, which it called the SEC’s “misguided and conscious refusal” to clarify crypto regulations.

After the complaint, Nansen said customers withdrew $790 million from Binance and its U.S. branch.

Binance assets were frozen by the SEC on Tuesday. Binance US. Binance Holdings is located in the Cayman Islands.

“It’s important to note that recent regulatory actions are aimed at ensuring that companies operating in the cryptocurrency industry are complying with securities laws and protecting investors – this will always be their goal,” said Joshua Chu, group chief risk officer at blockchain technology firms XBE, collectibles, and Marvion.

“These events will ultimately lead to a more stable and trustworthy industry, which could help attract more institutional investors and mainstream adoption.”