- The U.S. Securities and Exchange Commission (SEC) has requested Coinbase to halt trading on all cryptocurrencies except Bitcoin before filing a lawsuit against the exchange.
- The request for Coinbase to delist all of its 200+ tokens, excluding the cryptocurrency Bitcoin, indicates the SEC’s intention to assert broader authority over the crypto industry.
- SEC Chairman Gensler had previously stated that he believed most cryptocurrencies other than Bitcoin are securities.
It has come to light that the U.S. Securities and Exchange Commission advised Coinbase before filing a lawsuit against the company.
SEC Advised Coinbase Before the Lawsuit
The U.S. Securities and Exchange Commission (SEC) asked Coinbase to halt trading on all cryptocurrencies except Bitcoin before filing a lawsuit, showing the agency’s intention to assert regulatory authority over a broader area in the market.
Coinbase CEO Brian Armstrong stated that the SEC gave them this advice last month because the company did not register as a broker. In the SEC’s filing, it identified 13 cryptocurrencies with low trading volumes on the Coinbase platform as securities, claiming that by offering them to customers, the exchange came under regulatory authority.
However, the request for Coinbase to delist all of its 200+ tokens, excluding Bitcoin, indicates the SEC’s intention to assert broader authority over the crypto industry.
CEO Armstrong said the following:
“They came back and said, ‘We believe every asset other than Bitcoin is a security.’ We said, ‘Well, how do you arrive at that conclusion, because that’s not our interpretation of the law.’ They refused to tell us. They basically said, ‘We’re not going to tell you how we arrive at that conclusion. But if you want to launch this, this is your choice, but we’re going to sue you.'”
If Coinbase had complied with this request, it could have set an example where most American crypto businesses would have to operate outside of legal regulations until registering with the commission.
Armstrong continued:
“We really had no choice. To delist anything other than Bitcoin, which is not what the law said, would have been the end of cryptocurrency in America. It made the choice pretty clear… let’s go to court and see what the court has to say.”
Not Just the SEC, But Also Crypto-Opposed
Regulation of the crypto industry had been a gray area so far, with a conflict of authority between the SEC and the Commodity Futures Trading Commission (CFTC). CFTC sued Binance, the largest crypto exchange, three months before the SEC took legal action against the company in March of this year.
Gensler had previously stated that he believed most cryptocurrencies other than Bitcoin are securities. However, this request to Coinbase shows that the SEC has embraced this interpretation for regulating the industry.
Ethereum, the second-largest cryptocurrency and a foundation for many industry projects, was not mentioned in the regulator’s lawsuit against the company. Similarly, the SEC’s lawsuit against Binance did not include 12 “cryptocurrency asset securities” on its list.
Stocks, bonds, and other traditional financial instruments fall under the SEC’s authority, but U.S. authorities are still debating whether all or any crypto tokens come under its jurisdiction.
Being regulated by the SEC would mean adopting much stricter compliance standards. Crypto exchanges often offer customers custodial services and engage in lending, which is not feasible for companies regulated by the SEC.
Former CFTC Deputy Chief Charley Cooper said:
“There’s a group of U.S. companies that are developing business models based on the assumption that these cryptocurrencies are not securities. If they’re given different information, many of them will be forced to immediately shut down their operations.”
The SEC declined to comment on the consequences for the rest of the industry if Coinbase were to reach an agreement involving the delisting of all tokens except Bitcoin.
