In a move signaling its intent to assert greater regulatory authority over the cryptocurrency market, the US Securities and Exchange Commission (SEC) asked Coinbase Global (NASDAQ: COIN), the Nasdaq-listed cryptocurrency exchange, to suspend trading in all cryptocurrencies except bitcoin prior to initiating legal action against the company.
The SEC’s case centers on Coinbase’s failure to register as a broker and identified 13 cryptocurrencies, mostly lightly traded, as securities falling under its regulatory purview.
Coinbase CEO Brian Armstrong disclosed that the SEC had recommended delisting over 200 tokens, leaving only bitcoin, as a prerequisite for avoiding legal action. The agency’s position to categorize all cryptocurrencies, with the exception of bitcoin, as securities reflects the vision of SEC Chair Gary Gensler, who previously expressed his belief in this interpretation. However, the agency declined to explain the reasoning behind this stance, leading Coinbase to challenge the directive in court to seek legal clarity.
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“They came back to us, and they said . . . we believe every asset other than bitcoin is a security,” Armstrong told the Financial Times. “And, we said, well how are you coming to that conclusion, because that’s not our interpretation of the law. And they said, we’re not going to explain it to you, you need to delist every asset other than bitcoin.”
Had Coinbase agreed to the SEC’s request, it could have set a precedent jeopardizing the majority of American crypto businesses, forcing them to either operate outside the law or register with the commission. Armstrong stated that complying with the SEC’s demand to delist almost all tokens other than bitcoin would have effectively meant the end of the crypto industry in the US.
“We really didn’t have a choice at that point, delisting every asset other than bitcoin, which by the way is not what the law says, would have essentially meant the end of the crypto industry in the US,” Armstrong said. “It kind of made it an easy choice . . . let’s go to court and find out what the court says.”
The oversight of the cryptocurrency industry has been a subject of contention, with the SEC and the Commodity Futures Trading Commission (CFTC) vying for control.
The CFTC previously sued Binance, the largest crypto exchange, three months before the SEC took legal action against the same company. However, the recent recommendation to Coinbase indicates that the SEC is now more actively adopting its interpretation of most cryptocurrencies as securities in its efforts to regulate the sector.
If the SEC gains oversight of the crypto industry, it could impose stricter compliance standards on exchanges that offer services such as custody, borrowing, and lending to customers. These practices are currently not possible for SEC-regulated companies.
The SEC’s regulatory approach may significantly impact American businesses that have built their models based on the assumption that crypto tokens are not securities, potentially leading to some operations being halted.
Coinbase last traded at $98.61 on the Nasdaq.
Information for this story was found via the Financial Times, Protos, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
