Coinbase Ordered by US Securities and Exchange Commission to Halt Trading of Cryptocurrencies
In a move that highlights the agency’s intention to enforce regulatory authority over a larger part of the market, the Securities and Exchange Commission (SEC) has directed Coinbase to cease trading all cryptocurrencies except Bitcoin prior to filing a lawsuit against the exchange.
According to Brian Armstrong, CEO of Coinbase, the SEC issued this recommendation before initiating legal action against the Nasdaq-listed company last month for failing to register as a broker. The SEC identified 13 mostly low-traded cryptocurrencies on Coinbase’s platform as securities and claimed that the exchange falls under the jurisdiction of the regulatory authority by offering these cryptocurrencies to customers.
However, the prior request for Coinbase to delist every token offered on the exchange, except for Bitcoin, indicates that the SEC, under the leadership of Chairman Gary Gensler, has been pushing for broader authority over the crypto industry.
“They came back to us and said…We believe every asset except for Bitcoin is a security,” Armstrong said. “And we said, well how do you arrive at that conclusion because that’s not our interpretation of the law. And they said, ‘we’re not going to tell you, you have to delist every asset except for Bitcoin.'”
If Coinbase had complied with this request, it could have set a precedent that would have allowed the majority of American crypto companies to operate outside of the law if they did not register with the Commission.
“We really didn’t have a choice at that point. Delisting every asset except for Bitcoin, which by the way is not consistent with the law, would essentially mean the end of the crypto industry in the US,” he said. “It made the decision for us somewhat easy…Let’s go to court and find out what the court says.”
The oversight of the crypto industry has so far been a gray area, with the SEC and the Commodity Futures Trading Commission (CFTC) vying for control. In March of this year, the CFTC filed a lawsuit against the largest crypto exchange, Binance, three months before the SEC initiated its own legal action against the company.
Gensler has previously stated that he believes most cryptocurrencies, except for Bitcoin, are securities. However, the recommendation to Coinbase signals that the SEC has adopted this interpretation in its efforts to regulate the industry.
Ethereum, the second-largest cryptocurrency and widely used in industrial projects, was absent from the regulator’s proceedings against the exchange. It was also not included in the list of 12 “crypto asset securities” listed in the SEC’s lawsuit against Binance.
The SEC stated that its enforcement division had not made any formal requests to “companies to remove crypto assets from the list.”
“During the course of an investigation, staff may express their own views about what conduct might raise questions under the securities laws for the Commission,” it added.
While stocks, bonds, and other traditional financial instruments fall under the jurisdiction of the SEC, US authorities are still grappling with the debate of whether all or some crypto tokens should fall within their purview.
Regulation by the SEC would bring much stricter compliance standards. Crypto exchanges typically also offer custodial services as well as lending and borrowing to customers, a mix of practices not possible for SEC-regulated companies.
“There are a number of American companies that have built business models on the assumption that these crypto tokens are not securities,” said Charley Cooper, former chief of staff at the CFTC. “If they’re told something different, many of them would have to shut down immediately.”
“It’s very hard to imagine how there could be public offerings or retail trading of tokens without some intervention by Congress,” said Peter Fox, a partner at law firm Scoolidge, Peters, Russotti & Fox.
The SEC declined to comment on the impact of a settlement for the rest of the industry in which Coinbase would delist all tokens except for Bitcoin.
Referenz: Financial Times