The commission may be conducting normal inspections of the questioned exchange, or it may be seeking particular compliance problems to litigate
FOX Business reported on Wednesday that a source with direct knowledge of the SEC's actions stated the agency has written a letter to a prominent cryptocurrency exchange demanding information on how the site safeguards customers from insider trading. According to the insider, the identical letter was sent to various exchanges.
It is unclear which exchanges got the request, although Coinbase, Binance, FTX, and Crypto.com all refused to comment, according to a news source. The SEC also refused to confirm the investigation.
In addition, the nature of the investigation is unclear. It might be a normal compliance review by the Office of Compliance Inspections and Examinations, or it could be the SEC's enforcement division looking for evidence of possible law infractions on the part of an exchange.
In recent weeks, the SEC has been captivated by allegations of insider trading at OpenSea, the biggest nonfungible token (NFT) platform. After allegations of insider trading were brought against OpenSea's former product manager Nathaniel Chastain, Cointelegraph reported on June 3 that the commission might classify NFTs as securities.
Jeremy Hogan, a partner at the law firm Hogan & Hogan, told FOX Business that the SEC's recent interest in exchanges may originate from charges of insider trading on tokens that were planned for listing and expected to appreciate in value. Hogan said, "The SEC may be advising the exchange that they need to manage this kind of trade."
Under the proposed Digital Commodity Exchange Act of 2022, the SEC's supposed authority over cryptocurrency exchanges would be revoked. The law would provide the Commodity Futures Trading Commission (CFTC) control over crypto exchanges and stablecoin providers if it passes.
Current market dynamics and recent controversies in the cryptocurrency business may have prompted the SEC to launch the investigation. The Terra ecosystem failed at the beginning of last month as the TerraUSD Classic (USTC) stablecoin depegged and the Luna Classic (LUNC) cryptocurrency lost 99.9 percent of its value.
More recently, the decentralised finance (DeFi) staking and lending platform Celsius has been criticised for delaying user withdrawals amid concerns of its possible collapse amidst massive crypto transfers into the FTX market.
The overall market capitalization of cryptocurrencies has fallen below $1 trillion for the first time since February 2021. According to CoinGecko, it is now down 1.1% over the previous 24 hours to $977 billion.