As part of a dramatic escalation of a crackdown on the industry, the top U.S. securities regulator filed a lawsuit against cryptocurrency platform Coinbase on Tuesday. This is the second lawsuit in as many days against a significant crypto exchange, and it has the potential to drastically alter a market that has previously operated largely outside of regulation.

The largest cryptocurrency exchange in the world, Binance, came under fire from the U.S. Securities and Exchange Commission (SEC) on Monday. A “web of deception” is allegedly being run by Binance and its CEO Changpeng Zhao, according to the SEC.

If the cases are successful, they could fundamentally alter the cryptocurrency market by establishing the SEC’s authority over a sector that has long contended that tokens are not securities and should not be subject to SEC regulation.

According to Kevin O’Brien, a partner at Ford O’Brien Landy and a former federal prosecutor, “the two cases are different, but overlap and point in the same direction: the SEC’s increasingly aggressive campaign to bring cryptocurrencies under the jurisdiction of the federal securities laws,” adding that the SEC has not previously taken on such significant crypto players.

“The cryptocurrency industry will change if the SEC wins in either case.”

According to the SEC’s complaint, which was filed in federal court in Manhattan, Coinbase has generated billions of dollars since at least 2019 by acting as a middleman in cryptocurrency transactions while dodging transparency rules intended to safeguard investors.

According to the SEC, Coinbase traded at least 13 digital assets, including tokens like Solana, Cardano, and Polygon, that are securities and should have been registered.

Initial projections from data company Nansen state that Coinbase lost around $1.28 billion in net client revenue as a result of the litigation. After plunging as high as 20.9% earlier, shares of Coinbase Global Inc, the company that owns Coinbase, closed down $7.10, or 12.1%, at $51.61. This year, they are up 46%.

Coinbase’s general counsel, Paul Grewal, stated in a statement that the business will carry on as usual and has “demonstrated commitment to compliance.”

The SEC “looks like it’s playing Whac-A-Mole with crypto exchanges,” according to senior market analyst Ed Moya of Oanda, and since most exchanges provide a variety of currencies that utilize blockchain technologies deemed dangerous by regulators, “it seems like this is just the beginning.”

Contrary to expectations, the crackdown has benefited the most popular cryptocurrency, bitcoin.

Following the Binance lawsuit, bitcoin initially fell to a nearly three-month low of $25,350 before rising more than $2,000 and surpassing the day’s high. At 04:10 GMT, it was barely under $27,000.

According to Moya of Oanda, “The SEC is making life nearly impossible for several altcoins, which is actually pushing some cryptocurrency traders back into bitcoin.”

Unlike other assets like commodities, securities are carefully regulated and call for thorough disclosures to alert investors of potential dangers. Although the Securities Act of 1933 provided a definition of the term “security,” many authorities depend on two decisions by the U.S. Supreme Court to determine whether an investment product falls under this definition.

Gary Gensler, the chair of the SEC, has long said that tokens are securities and that the SEC has slowly asserted its control over the cryptocurrency market, initially focusing on the sale of tokens and interest-bearing crypto goods. Recently, it has focused on clearing, exchange trading, and unregistered cryptocurrency broker dealers.

No cryptocurrency platform functions as a full-fledged stock exchange, despite a few cryptocurrency businesses having licenses as alternative system trading systems, a sort of trading platform used by brokers to trade listed securities. This year, the SEC also brought legal action against Bittrex Inc. and Beaxy Digital for failing to register as a broker, clearinghouse, or exchange.

According to Gensler speaking to CNBC, “the entire business model is built on a noncompliance with the U.S. securities laws and we’re asking them to come into compliance.”

Tokens do not match the definition of a security, according to crypto businesses, and the SEC’s regulations are unclear and go beyond its legal power. However, in reaction to the crackdown, numerous businesses have increased compliance, shelved items, and expanded outside of the nation.

Gensler’s attempts to regulate the sector were rebuffed by Blockchain Association CEO Kristin Smith.

Since its founding in 2012, Coinbase has served more than 108 million users, and as of the end of March, it has $130 billion in customer cash and cryptocurrency assets on its financial sheet. 75% of its $3.15 billion in net revenue last year came from transactions.

Tuesday’s SEC action calls for injunctive remedies, civil fines, and the recovery of gains that were obtained illegally.

The SEC charged Binance on Monday with exaggerating trade volumes, diverting customer funds, mixing assets inappropriately, failing to bar U.S. users from its platform, and deceiving users about its control measures.

The action, according to Binance, reflects the SEC’s “misguided and conscious refusal” to bring clarity to the cryptocurrency industry. Binance has vowed to forcefully defend itself against it.

Following the lawsuit, customers withdrew about $790 million from Binance and its U.S. affiliate, according to Nansen.

The SEC submitted a motion to freeze Binance’s assets on Tuesday.the American branch of Binance. Binance’s holding company is headquartered in the Cayman Islands.

“It’s important to note that recent regulatory actions are aimed at ensuring that companies operating in the cryptocurrency industry are complying with securities laws and protecting investors – this will always be their goal,” said Joshua Chu, group chief risk officer at blockchain technology companies XBE, Coinllectibles, and Marvion.

“These developments will eventually result in a more reliable and reputable industry, which may help to draw more institutional investors and mainstream adoption.”