Why Coinbase, Riot Platforms, and Cipher Mining Are Falling This Week

What happened

Shares of many crypto stocks and cryptocurrencies fell this week as the Securities and Exchange Commission (SEC) continued to crack down on the industry.

Shares of Coinbase (COIN 1.19%) are trading more than 16% lower for the week as of 11:39 a.m. ET Thursday, according to data from S&P Global Market Intelligence. Meanwhile, shares of the Bitcoin-mining company Riot Platforms (RIOT 2.00%) traded nearly 9% lower, while shares of Cipher Mining (CIFR -0.02%) were down roughly 11.6%.

So what

The SEC did not mess around this week. First it sued Binance on 13 charges, and then it sued Coinbase, alleging that the large U.S.-based exchange has been running an unregistered exchange, brokerage, and clearing agency.

A big part of the argument stems from the SEC’s belief that crypto exchanges like Binance and Coinbase are trading cryptocurrencies that should be classified as securities and therefore registered with and regulated by the SEC. Most crypto advocates view cryptocurrencies as commodities, which are typically regulated by the Commodity Futures Trading Commission. 

The SEC claims that Coinbase traded at least 13 crypto assets that should be classified as securities, including Solana, Cardano, and Polygon. Ultimately, these lawsuits are going to have industrywide ramifications. Kevin O’Brien, a partner at Ford O’Brien Landy and former federal prosecutor, said that “if the SEC prevails in either case, the cryptocurrency industry will be transformed.”

Related articles

No, Russia did not just lift its ban on domestic crypto use

30 July 2024

New US Bitcoin Mining Hardware Creates $20B Opportunity, Could Disrupt China’s Mining Dominance: Bernstein – Canaan (NASDAQ:CAN)

30 July 2024

Now, it’s not totally clear that the SEC will prevail in these lawsuits. After all, many investors believe that the company Ripple, the creator of XRP, can win its long-standing lawsuit with the SEC, which is over similar matters.

“I don’t think that this SEC under this leadership necessarily cares whether they win or lose in the courts. I think what they are engaging in is a coordinated campaign to essentially destroy the crypto economy in the United States,” Ripple’s chief legal officer, Stuart Alderoty, said at a conference earlier this week.

There’s good reason to believe that this could be just the beginning of lawsuits coming out of the SEC, as there are many other exchanges selling cryptocurrencies that the SEC believes should be classified as securities. While Riot and Cipher are largely in the business of mining Bitcoin, which SEC chair Gary Gensler has called a commodity, the cases this week clearly show that the SEC has grown bolder. 

Now what

It’s hard to say exactly how all of this will play out, but the first thing I’ll be looking for is a decision in the Ripple case, which could set a precedent for the entire industry. If we’re lucky, a court decision on this case could be out in the coming weeks.

But I also expect to see more lawsuits out of the SEC, as the agency seems to have taken a clear position on its stance over certain cryptocurrencies being securities. I think the bankruptcy of the scandal-laden FTX exchange last year triggered the agency to get more aggressive.

ADVERTISEMENT

Ultimately, though, I’m not buying any of these stocks right now. Coinbase has been struggling financially in recent quarters, and the outcome of this lawsuit is too uncertain right now. While Riot and Cipher may not be too affected by this, I simply prefer to own Bitcoin itself.