American bitcoin exchange Coinbase received a notice SEC regarding an investigation into the listing procedure on the platform and its products — Coinbase Prime, Coinbase Wallet and staking service Coinbase Earn.
Coinbase received a Wells notice from the SEC. After years of asking for reasonable crypto rules, we’re disappointed that the SEC is considering courts over constructive dialogue. But if courts are required, so be it. We’ll defend the rule of law. 1/15 https://t.co/MXpc0RhNj4
— paulgrewal.eth (@iampaulgrewal) March 22, 2023
Chief Counsel Paul Grewal explained in a blog post that the notice does not constitute an official accusation or initiation of court proceedings. Such an outcome is possible in the absence of addressing the allegations regarding potential securities law violations.
The company’s shares closed March 22 down 8.16%. In after-hours trading, the stock fell 12.9%.
“The letter does not contain detailed information we could respond to. Regulators said they had identified potential securities-law violations, but nothing more,” — Grewal lamented.
The top executive assured that it would continue to operate as usual.
The chief counsel stressed that the platform is confident the assets and products in question comply with the law.
“We are ready to go to court to secure regulatory clarity. … We are prepared to show that the SEC is unfair in its stance on digital assets,” he said.
According to Grewal, over the last nine months the company’s staff held more than 30 meetings with officials from the Commission.
In January, the SEC told Coinbase of its intention to prepare enforcement actions against the exchange, although it was expected that the next day officials would provide the promised response to the platform’s proposals.
The exchange rejected more than 90% of assets that could have been included in the listing, regularly inviting regulators to discuss the correctness of its policy.
The management proposed two alternative business registration models, spending millions on legal advice, but received no response.
Grewal noted that prior to listing on Nasdaq in the securities registration form Coinbase mentioned staking 57 times. At that time the SEC did not raise objections, and the product has not changed since 2021.
“Coinbase Wallet is technology, not an exchange, broker or centralized platform,” the expert continued. “This misunderstanding of crypto products, assets and services is another example of the need for comprehensive regulation in the United States that understands the technology”, — Grewal emphasized.
Concerns against Coinbase arose a month after rival Kraken settled accusations regarding its staking program, whose offering and sale the latter did not register.
Then-SEC Chairman Gary Gensler urged the crypto industry to heed Kraken’s episode. In an interview, when asked what coercive measures could be applied to other programs like Coinbase Earn, the head of the agency replied that ‘labels’ — credit, income or earnings — do not matter.
CEO Coinbase Brian Armstrong stated that he is prepared to fight the staking program in court. The top executive expressed confidence that the service cannot be regarded as offering securities.
The investigation may also relate to an insider trading case of crypto assets. Former Coinbase product manager Ishan Wahi pleaded guilty to two counts. In that case, the agency classified nine tokens as “digital securities”.
The community condemned the SEC.
Custodia CEO Caitlin Long has hardened her view that the Biden administration is aiming to drive the entire crypto industry out of the United States.
“Also see yesterday’s White House economic report, which rejects all financial innovations while supporting the ‘stability’ of traditional banks,” she lamented.
IT SHOULD BE CRYSTAL CLEAR BY NOW that the Biden Administration wants all #crypto (even the legit parts of it)—run out of the U.S. See also yesterday’s White House economic report, which dunked on all financial innovation while espousing the «stability» of traditional banks https://t.co/eFZsKpZG15
— Caitlin Long ?⚡️? (@CaitlinLong_) March 22, 2023
Actions by the SEC have puzzled Andreessen Horowitz general partner Chris Dixon.
“From day one, Coinbase has invested heavily in being fully compliant with US laws even when it forced them to move slower or lose a competitive edge vs other exchanges that chose to take shortcuts.” — Dixon said.
Since day one, @coinbase has invested heavily in being fully compliant with US laws even when it forced them to move slower or lose a competitive edge vs other exchanges that chose to take shortcuts. https://t.co/WieptZxXwx
— cdixon.eth (@cdixon) March 22, 2023
The Coinbase response’s venture partner at Cinneamhain Ventures Adam Cochran welcomed Coinbase’s decision to take on the SEC in court and vowed to “vote with his wallet,” using the platform’s products.
Oh PS — if Coinbase does indeed choose to fight the SEC as they are saying they will, then I’m:
-Moving all my purchases to Coinbase
-Moving all my trading to Coinbase
-Delegating to Coinbase staking nodesIf they go to bat for this industry, I’ll vote with my wallet. ?
— Adam Cochran (adamscochran.eth) (@adamscochran) March 22, 2023
For example, in March 2023, Gensler suggested that tokens under the Proof-of-Stake consensus mechanism may be considered securities under US law.
In February the head of the agency hinted at the possibility of recognizing all cryptocurrencies, except Bitcoin, as securities. His position came under criticism by industry lawyers.
Prior to this, Gensler called the crypto market centralized. He urged platforms to approach the SEC about recognizing whether a given asset is an investment contract. He also warned of possible prosecution of unregistered Bitcoin exchanges.