Coinbase stock tumbles after SEC complaint against Binance

The 136-page complaint the SEC filed against crypto exchange Binance on Monday morning, alleging market manipulation, securities law violations, and fraud, can be taken as a template for any future complaint against Coinbase.

Why it matters: An SEC case against Coinbase has been expected at least since March when the exchange revealed it had received a "Wells notice" from the agency.

• Neither Coinbase nor the SEC could be reached for comment.
• The SEC has filed earlier complaints against foreign crypto companies for being unregulated securities exchanges, and against domestic companies for their staking products, where customers were encouraged to earn interest on their crypto.

The big picture: We now have chapter and verse on exactly how the SEC thinks crypto exchanges are operating illegally.

• The Binance complaint includes 39 pages detailing how a series of coins, including Solana, Cardano, Polygon, Filecoin, and others, are in fact securities — which means they can be traded only on a registered securities exchange.
• Binance isn't a registered securities exchange. Neither is Coinbase, which also lists all those coins and allows its customers to trade them.

What they're saying: Binance "unlawfully offered three essential securities market functions—exchange, broker-dealer, and clearing agency—on the Binance Platforms without registering with the SEC," says the complaint.

• "Acutely aware that U.S. law requires registration for these functions, Defendants nevertheless chose not to register, so they could evade the critical regulatory oversight designed to protect investors and markets."

Our thought bubble: Coinbase did exactly the same thing — and also had its own staking product. If the SEC doesn't prosecute Coinbase along similar lines, it will leave itself open to accusations of having a double standard.

Zoom out: Coinbase has orders of magnitude more U.S. customers than FTX (now bankrupt) and Binance combined; it is also a publicly-listed company, regulated by the SEC, with its stock trading on the Nasdaq exchange.

• Coinbase shares fell 9% on Monday after the Binance complaint was unveiled.
• Coinbase has repeatedly tried to make the case that when the SEC allowed it to go public, the regulator implicitly endorsed the crypto company's business. That argument seems increasingly untenable at this point.

The bottom line: The SEC looks like it's trying to set some clear precedents before going after Coinbase, the biggest kahuna in the U.S. market. If and when the SEC wins its case against Binance, expect Coinbase to be next.