SEC vs Coinbase. Another FTX. Along the DEXs’ path

Coinbase now stands at a crossroads: either it will restore trust and provide a safety net. Or it will be on a path to failure, which will doom cryptocurrencies to lose trust among the masses. The fate of investors now depends on which path the company chooses.

A recent US federal court decision, denying Coinbase's motion to dismiss the lawsuit of the Securities and Exchange Commission's (SEC) has potentially devastating consequences not only for the exchange itself, but for the entire cryptocurrency industry.

In short, the court found that the SEC presented sufficient evidence that Coinbase operated as an unregistered securities exchange, broker, and clearing agency in violation of federal securities laws.

Even more troubling is the finding that the exchange's staking program was actually offering unregistered securities.

This decision is a strike at the heart of Coinbase's business model and undermines its main source of income - commission from cryptocurrency staking. If the court ultimately rules against Coinbase, it could lead to the collapse of its entire ecosystem of services.

Moreover, the consequences extend far beyond the boundaries of one company. 

If the SEC prevails in this lawsuit, many other major crypto exchanges and platforms may be forced to completely overhaul their operating models and products to comply with the court's decision.

Accordingly, I predict: many will choose the path of DEXs in order to avoid the blow and not incur regulatory fire.

Naturally, Gensler’s free hands are a precedent for further tightening supervision and control over the cryptocurrency industry. It will continue to treat most existing crypto assets and related services as securities. This will definitely paralyze innovation and undermine efforts to develop a transparent and fair crypto-economy.

In the worst case, the decision will be the beginning of the end for many cryptocurrency startups: they will either have to radically change their products and services, or risk being outlawed.

At this time: Coinbase's Bitcoin reserves have fallen to a 9-year low

Coinbase is going through difficult times, like Binance did some time ago — the pride of the industry. A drop in the reserves of the main cryptocurrency is an alarm bell that can have devastating consequences.

Let's assess the scale of the problem. Cryptocurrency reserves on centralized exchanges serve as a critical liquidity and security buffer. The reserve is necessary for the uninterrupted withdrawal of funds by clients, as well as to maintain stable staking and lending.

Coinbase reaching a 9-year low in reserves highlights several potential risks.

• First, this could be a sign of capital flight from the platform.

• Secondly, low reserves make the exchange extremely vulnerable in the event of a mass withdrawal of coins.

• Third, staking services, which generate a significant portion of Coinbase's profits, could suffer if there are not enough bitcoins to issue rewards.

But it's not just Coinbase itself: its problems resonate throughout the industry and could have systemic consequences.

If I say that Coinbase is the gateway to the world of retail cryptocurrencies, then this will not be news. However, if Brian Armstrong cannot convince everyone that the situation is under control, then the entire industry will be shaken, and this will inevitably undermine confidence in the industry as a whole.

Additionally, if Coinbase's reserves are depleted, it could go the way of notorious platforms like Mt.Gox and FTX.

Perhaps this news is just a temporary disruption caused by market turbulence. But this also serves as a clear signal that exchanges should not forget about ensuring their own reliability and transparency. The crypto community can't afford another Sam Benkman-Fried.

Of course, it is too early to indulge in apocalyptic forecasts. Brian Armstrong is unlikely to give up without a fight, and will probably appeal this decision in all possible instances. However, the court made its position clear, and this is a bad sign for the crypto industry.

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