Crypto billionaires have faced a significant setback this week as regulatory actions by the US Securities and Exchange Commission (SEC) have shaken the world's largest crypto platforms, Binance Holdings and Coinbase Global, Bloomberg reports. The SEC's crackdown has shattered the optimism that had recently returned to the digital asset markets after a challenging period known as the "crypto winter" in 2022.
Over the past two days, Binance's CEO Zhao Changpeng, also known as CZ, has experienced a $1.4 billion decrease in his wealth, leaving him with a total net worth of $26 billion. Similarly, Coinbase CEO Brian Armstrong's net worth has slumped by $361 million to $2.2 billion, according to the Bloomberg Billionaires Index. The SEC's lawsuits against both companies, accusing them of violating securities regulations, have caused a sharp decline in the shares of various crypto-related companies and tokens.
This recent development adds to the rollercoaster ride that crypto's wealthiest founders have experienced. In 2022, their combined net worth took a major hit due to high-profile failures such as the algorithmic stablecoin TerraUSD, hedge fund Three Arrows Capital, and FTX led by Sam Bankman-Fried. However, their fortunes bounced back strongly this year, with a collective increase of $15.4 billion as the prices of Bitcoin and other digital assets skyrocketed.
Before the recent downturn, Zhao's wealth had surged by 117 per cent, while Armstrong's net worth had grown by 61 per cent. In contrast, the other billionaires on Bloomberg's wealth index only saw a combined increase of 9 per cent. Bitcoin's partial comeback in 2023 was fueled by expectations that the US banking crisis in March would lead the Federal Reserve to pause its rate increases. This narrative supported the argument that Bitcoin could benefit from lower real interest rates and act as a safe haven during financial turmoil.
However, the regulatory challenges imposed by US authorities could undermine these positive developments by making it harder for the crypto industry to operate and for Americans to trade. The SEC's lawsuit, filed on Monday, alleges that Binance and Zhao misled investors and regulators, mishandled customer funds, and violated securities regulations. Zhao co-founded Binance in 2017 and successfully built it into a global giant, reaching a personal net worth high of $96.9 billion in January 2022.
Shortly after, the SEC sued Coinbase on Tuesday, causing its stock to plummet by 12 per cent. While the SEC did not accuse Armstrong of any wrongdoing, the lawsuit claimed that Coinbase evaded SEC rules by allowing users to trade unregistered securities. Armstrong, who holds a 16 per cent stake in the company, has been consistently selling his Coinbase stock, offloading approximately $27 million worth in 2023. Fred Ehrsam, Armstrong's co-founder and current venture capitalist at Paradigm, also saw his net worth decline to $1.1 billion. Notably, Paradigm funds, managed by Ehrsam, purchased Coinbase shares worth $50 million in May.
As legal battles between crypto platforms and regulatory bodies unfold, the future of the industry remains uncertain. The outcomes of these cases will significantly impact the operations of these platforms and the accessibility of crypto trading for American users.
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