Bloomberg is reporting that, according to three people familiar with the matter, Coinbase is facing a US probe into whether it improperly let Americans trade digital assets that should have been registered as securities.
This is the latest in a series of escalating rhetoric between the US’ largest crypto exchange and various regulators.
Tl; dr…
Coinbase to Regulators: Tell us what is a security.
SEC to Coinbase: We’ll probe you for selling them.
The latest escalation – that has not been confirmed by the SEC or Coinbase – follows the SEC charging three men, including one of the company’s former employees, of insider-trading (leaking information about which tokens to buy just before they were listed on the platform). Specifically, the SEC did not charge Coinbase with any wrongdoing.
However, it appears that was not enough as various regulators vie for control of the crypto markets, and the SEC said it had determined that nine of the dozens of digital tokens the men traded were securities – including seven the exchange says it lists.
In what seems like a pre-emptive strike by Coinbase’s Counsel, the company issued a blog post entitled “Coinbase does not list securities. End of story.” (emphasis ours)
We cooperated with the SEC’s investigation into the wrongdoing charged by the DOJ today.
But instead of having a dialogue with us about the seven assets on our platform, the SEC jumped directly to litigation. The SEC’s charges put a spotlight on an important problem: the US doesn’t have a clear or workable regulatory framework for digital asset securities.
And instead of crafting tailored rules in an inclusive and transparent way, the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities.
Just this morning (and with no prior knowledge of the timing of the charges discussed), Coinbase filed a petition for rule making with the SEC calling for actual rule making so the crypto securities market has a chance to develop. We worry that today’s charges suggest the SEC has little interest in this most fundamental role of regulators.
But in the absence of a concrete digital asset securities regulatory framework from the SEC, we remain confident that Coinbase’s rigorous review process keeps securities off Coinbase’s platform. We remain eager to share our perspective with the SEC, especially through a formal rule-making process desperately needed.
As Bloomberg notes, Gensler has long argued that many cryptocurrencies fall under the regulator’s jurisdiction and that firms offering them should register with his agency.
However, the SEC mostly hasn’t said specifically which coins are securities, and exchanges decide whether to list an asset.
When the headlines hit Bloomberg – “Coinbase Faces SEC Investigation Over Cryptocurrency Listings” – tyhat was all the early Asia traders needed (especially given US equity fitures were lower driven by WMT’s ugly earnings cut) and cryptos tumbled with Bitcoin dropping back below $21k…
On a side note – while on the topic of regulators doing their jobs – The Wall Street Journal reported earlier that a bipartisan bill to regulate stablecoins will now be delayed and will not be completed until after the Midterms. Outstanding issues include standards around so-called custodial wallets, one of the people said. Treasury officials pushed for wallet provisions that Republicans were uncomfortable with, the person said.
No matter what – the war between Coinbase and its ‘regulators’ is only just beginning.
