Leading cryptocurrencies have taken a hit after the US regulator announced plans to sue leading exchanges Binance and Coinbase amid a wider crackdown on the industry.
Investors have pulled around $790million from Binance and its US affiliate in the last 24 hours, according to data firm Nansen.
On Monday, the US Securities and Exchange Commission (SEC) sued Binance, its chief executive Changpeng Zhao and the operator of US affiliate Binance.US over a ‘web of deception’ to evade US securities laws.
Crypto crackdown: The US regulator has sued Binance and its CEO Changpeng Zhao (pictured) for mishandling funds
The regulator alleged in 13 charges that the exchange artificially inflated its trading volumes, diverted customer funds and failed to restrict US customers from its platform.
SEC chair said: ‘They attempted to evade US securities laws by announcing sham controls that they disregarded behind the scenes so they could keep high-value US customers on their platforms.
‘The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.’
Binance said it was ‘disheartened’ by the decision to sue having ‘actively cooperated with the SEC’s investigations’.
‘All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary.’
A day later, the SEC announced it had sued Coinbase for violating federal securities laws.
The SEC said Coinbase had never registered as a broker, national securities exchange, or clearing agency, and had therefore evaded its disclosure rules.
Shares in the Nasdaq-listed exchange are trading down 13.7 per cent this afternoon at $50.60.
The filings comes as regulators pledge to use existing laws to weed out fraudulent activity in the crypto industry, following the collapse of Binance rival FTX last November.
Bitcoin fell 5 per cent following the news of the Binance lawsuit, its worst daily decline since mid-April.
The price has recovered somewhat this afternoon to trade at $25,924, despite the Coinbase news, but it marks a significant decline since last June when it was trading at $31,351.
Ethereum is trading down 2.66 per cent at $1,832, while Binance’s BNB cryptocurrency fell to a near three-month low of $278.20 after the price tumbled 9.2 per cent on Monday.
Laith Khalaf, head of investment analysis at AJ Bell said: ‘The robust language used by the SEC, along with the lengthy list of charges, suggests this latest fiasco to engulf the crypto market is going to rumble on for some time.
‘The price of Bitcoin took a tumble on the back of the news, and at the moment it feels like the crypto bubble is suffering death by a thousand punctures.’
The Commodity Futures Trading Commission filed its own lawsuit against Binance in March, accusing the exchange, which is registered in the Cayman Islands, of operating in the US illegally. It is also under investigation by the Department of Justice.
The UK’s own regulator sounded the alarm on Binance two years ago, warning consumers the exchange did not hold ‘any form’ of permission to conduct regulated activity in the UK.
