AILSA CHANG, HOST:
It had been billed as the future of finance, but the future of crypto will be shaped by major lawsuits filed this week against two companies that run some of the largest platforms for buying and selling cryptocurrencies. Wall Street's top cop says those exchanges are illegal. NPR's David Gura joins us now to explain what's at stake. Hi, David.
DAVID GURA, BYLINE: Hey, Ailsa.
CHANG: All right. So let's start with that allegation in these lawsuits. Why do regulators say these exchanges are illegal specifically?
GURA: So the Securities and Exchange Commission has brought more than a dozen charges against Binance and Coinbase, and while I know those aren't household names, these companies are big players in the world of crypto. And what the SEC argues is they have to register their crypto exchanges with the agency. They have to comply with existing regulations in the same way, you know, a traditional stock exchange has to. Neither company has done that so far. And what you have to understand is this goes against a really central tenet of crypto, which is that by design, it's supposed to operate outside of traditional finance...
CHANG: Right.
GURA: ...Outside the oversight of government regulators. So that's what's at the heart of these two lawsuits, Ailsa, which are really a direct challenge to the way that many crypto companies do business.
CHANG: I mean, the way you're talking about it makes this sound like this whole fight is almost existential, then.
GURA: That's exactly how it's been described to me by analysts and by former regulators. You know, there are critical, yes, existential questions here. Are crypto companies going to have to operate the same way traditional finance firms do, or are they going to continue to exist in this regulatory gray area? Timothy Massad is the former head of another federal agency that's interested in crypto. That's the Commodity Futures Trading Commission.
TIMOTHY MASSAD: The outcome of these cases, whether that's determined by court decision or a settlement, will basically determine the shape of crypto regulation in the U.S.
CHANG: Wow. OK, so what do these lawsuits mean, then, for people who buy and sell crypto?
GURA: So look. This has been a pretty rough stretch for crypto. What's been called a crypto winter set in after the collapse of FTX late last year.
CHANG: Yeah.
GURA: Of course, that was the big crypto company run by Sam Bankman-Fried, who now faces a slew of criminal charges. After FTX went belly-up, prices sank. So did enthusiasm for crypto. And now there's this sense this is going to undermine confidence even more. In fact, immediately after the SEC filed these charges, Ailsa, customers took hundreds of millions of dollars' worth of cryptocurrency out of Binance, out of Coinbase. That is way more than usual.
CHANG: Wow. So then what does all of this mean for crypto more generally?
GURA: I think it's important to note that although cryptocurrencies have become more popular, according to a recent report, only 12% of American households own them. But Stephen Glagola, an analyst who covers Coinbase for TD Cowen, is optimistic these suits are going to help the industry long-term.
STEPHEN GLAGOLA: I think that the outcome of this will be more transparency for investors broad-based in cryptocurrency and in crypto assets.
GURA: We're at this place where all signs seem to indicate there will be clearer rules. But what's unclear, Ailsa, is whether they'll come from the courts or they'll come from Congress.
CHANG: I mean, yeah. Is there a chance that Congress could step in and just settle all of this?
GURA: The short answer is yes. You have to keep in mind it will take many months, if not years, for these suits to work their way through the courts. And while that happens, the industry is going to be focused on Congress. You know, crypto companies believe it's up to lawmakers to set clear guidelines, clear rules of the road for crypto. They say regulators shouldn't be relying on laws that were written, really, decades before crypto became a thing. Now, we have seen bills introduced that do address crypto directly. But, of course, you've covered the Capitol, Ailsa.
CHANG: Yes, I have.
GURA: You know that Congress is going to Congress.
CHANG: Yup.
GURA: And it's unclear when or if we're going to see an up or down vote on crypto legislation.
CHANG: That is NPR's David Gura. Thank you so much, David.
GURA: Thank you. Transcript provided by NPR, Copyright NPR.
