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Answering Reader Questions About the SEC Lawsuits and What It Means For Your Money

After last week's article discussing the SEC lawsuits against Binance and Coinbase, we received a lot of questions from you, our dear readers.

Understandably, many of you are concerned about what this means for our beloved digital money. Whether it was hacks, blowups, or a natural boom and bust cycle, the crypto industry has weathered many-a-storm.

But now, with the regulators at the SEC coming down on exchanges, and thought-leaders claiming that the US government will do anything they can to “destroy crypto” to save fiat, you are probably asking yourself what to do.

So, in this issue, we’re answering some of the most common questions we received over the last week.

What does the SEC lawsuit mean for BTC?
It’s definitely not great, but it’s not the end of the world either.

The regulatory crackdown has created stress in the industry with market-making giants, professional investors, and retail investors beginning to pull away from crypto.

But while it has impacted some other tokens, BTC’s price hasn’t moved all that much throughout this entire crackdown. What price movement there was, looked to be mostly due to selling pressure from crypto moving off of Binance.

Remember, BTC is a global asset and it behooves the US government to support it, get left behind, or as Peter Thiel has put it, be dethroned.

Bitcoin’s entire value proposition rests on being decentralized, permissionless, and censorship-resistant. The SEC targeting crypto will have an impact on bitcoin’s price without a doubt, but in the long run it will be fine.

What does this mean for Coinbase and other Western exchanges as a user?
In the short run, not much. Coinbase has already said they will continue to operate their exchange as usual, and will continue to do so until the case is resolved one way or the other.

In the long run, potentially a lot. If the SEC wins, it means the legal system determined that Coinbase is an unregistered securities exchange. That’s when all hell would break loose. Does Coinbase pay a fine? Get shut down? Is crypto legal in the US? At that point, it’s anybody’s guess.

But, there are a lot of steps and most likely many years before we get to that point. Ripple’s SEC lawsuit began in 2020, for example, and they are still litigating it today. So, there’s not much reason to get too worked up about this right now.

Furthermore, user assets on Coinbase are fully backed and exchanges such as Kraken publish a proof of reserves.

While we do believe assets on these exchanges are safe, it still may make sense to self custody your assets.

What does this mean for Coinbase’s stock price?
Coinbase’s (COIN) stock already took a big hit after the lawsuit announcement, but other than that, the likely answer is the same as above: not much.

At this point, there’s most likely nothing in the case that will move the stock much in either direction, and everybody who was going to sell because of the lawsuit has probably already sold. So, in relation to COIN’s stock price, the case probably won’t affect volatility much further until we know what the end result will be.

Taking it a step further though, we have to work under the assumption that Coinbase may settle or even lose against the SEC. If that is to be the case, Coinbase will have to pay a large fine. But you have to ask yourself, what is the fine worth with the potential of finally getting regulatory clarity?

One could argue that having regulatory clarity around what the exchange can and cannot do is worth more than any hundreds of millions of dollars in potential fines, in which case the stock may even rise.

As for other exchanges that were looking to go public soon including Kraken and Blockchain, that’s not going to happen.

What does this mean for ETH and other crypto assets?
We’re going to sound like a broken record here, but for assets that weren’t called out by the SEC as securities, not much until the case is decided.

In reality, this might be a good opportunity to scoop up tokens that you like on the cheap.

But, for the assets that were called out by the SEC as securities, we would probably steer clear for now.

So, what should I do?
Don’t panic and ask yourself why you are here in the first place.

If you are participating in the crypto economy to gamble on small assets hoping they 100x tomorrow, then the SEC lawsuits might be reason for concern and we suggest checking out the latest AI hype plays.

But if you are in this economy to take back control from corruption, to hedge against government overreach and overspending, and to support the new and emerging decentralized economy, then now is the time to stay strong and vote with your wallet.

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Uniswap Gives First Look at V4

Uniswap is one of the largest and most popular decentralized exchanges (DEXs) that crypto has to offer. It regularly handles billions of dollars in transactions each week, and it frequently has greater trading volume than even Coinbase.

Beyond its dominant position among DEXs, Uniswap is also usually on the cutting edge of DeFi. The original Uniswap exchange basically invented the DEX, while the third version, Uniswap V3, introduced the now-popular “concentrated-liquidity” function, which allowed participants to provide liquidity within a custom price range.

Now, the DEX king is due for its next big upgrade.

Enter V4
That upgrade is the fourth iteration of the exchange, the creatively named Uniswap V4.

The big addition in V4 is “hooks”, a “powerful new way to customize liquidity pools”. Simply put, hooks are plugins that allow users to customize how pools, swaps, fees, and liquidity providers interact. For example, hooks will enable the development of a time-weighted average market maker and on-chain limit orders – things that were previously impossible to do in Uniswap V3.

The other big improvement coming from V4 is the “singleton”. The singleton is a single smart contract that contains all of the liquidity pools deployed on V4. Because the singleton provides a single point for all trades to be routed through, gas fees for swaps and creating a pool should be dramatically reduced.

A Decentralized Improvement Process
These are already massive upgrades, but it very well could be just the beginning for V4. Keeping with their decentralized principles, Uniswap is building V4 in public and is actively considering community feedback before officially deploying V4.

In other words, anybody in crypto can come and suggest improvements to V4.

Couple this with the fact that the centralized exchanges are currently at war with the SEC, and it suddenly becomes very easy to picture a world in which Uniswap and other DEXes dominate the exchange landscape.

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🏛️ REGULATORY FRONT

Secret SEC Emails Released

In 2018, SEC Director of Corporation Finance William Hinman gave a speech in which he expressed his view that Ether is not a security due to being a decentralized asset without any controlling party.

It sounds good, but that same speech also created years of confusion over what cryptocurrencies do count as securities. It’s a question that still doesn’t have an answer, and is now the focus of SEC lawsuits against Coinbase and Binance.

But, somehow, there’s even more surrounding this infamous speech.

The Emails
That more is a set of emails tied to the speech. The SEC fought for years to keep these emails secret, but thanks to Ripple’s own-battle with the SEC, we now finally know what is in them.

The emails show a back and forth between Hinman and SEC officials over the language in his speech. They debated over the facts of the cases Hinman cited. They debated over his declarations surrounding Ether’s security status. And, most importantly, they debated over his interpretation of the Howey Test and how it applies to digital assets.

Sufficiently Decentralized
Hinman believes that cryptocurrencies aren’t a security if they are sufficiently decentralized. Not only that, but he believes that a crypto could start as a security and morph into a non-security once it reaches sufficient decentralization.

As the SEC officials pointed out in the emails, that’s an issue for the SEC, as it creates a “regulatory gap” between digital assets and securities law. In other words, there are many digital assets that might not technically be a security, but could benefit from regulation. In other other words, exactly what Coinbase has been saying for years.

However, that’s not the only thing the SEC expressed concern about in these emails.

Morphing
The SEC was very concerned about the concept of morphing (an asset going from security to non-security), and for good reason. For one, it opens up the door to arguments that other crypto assets are no longer securities. That could expose them to a massive headache. And for another, it possibly paints them as hypocrites. Let us explain.

The speech and the emails clearly show that at one point the SEC believed Ether was not a security. So, if the SEC was to argue differently today, they have to make the case that Ether has morphed from not a security to a security, thereby acknowledging the idea of morphing.

That is something SEC Chair Gary Gensler desperately wants to avoid, but now looks increasingly impossible to do.

The bottom line is this: the combination of sufficient decentralization and morphing opens the door to a new legal argument in defense of cryptocurrencies against the SEC.

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