Amid the news of bank failures last week, you may have heard that cryptocurrency wallet and platform Coinbase received a Wells notice from the U.S. Securities and Exchange Commission (SEC). The notice is a letter that the SEC sends at the end of an investigation, informing an organization of the charges it plans to bring against the party.
What Coinbase did (or didn’t do) wrong
So why is the SEC taking aim at Coinbase? The commission said that its investigation identified that Coinbase’s listed digital assets, Coinbase Earn, Coinbase Prime, and Coinbase Wallet are potentially violating securities law. This statement makes it clear that the SEC believes it has identified securities listed on Coinbase’s platform. Coinbase, on the other hand, insists that it does not list securities on its platform.
Crucial to this debate is understanding that there is an ongoing, complicated debate on whether or not cryptoassets should be considered securities. After receiving the Wells notice, Coinbase asked the SEC to identify which specific assets listed on its platforms are considered securities, but the SEC declined to do so.
Coinbase’s public response
After receiving the Wells notice, Coinbase published a blog post titled, “We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead.” In post, the company reinforces that it does not consider its cryptoassets securities, and that the Wells notice does not require changes to its current products or services.
Furthermore, Coinbase said it attempted to register a portion of its business with the SEC last summer. This was tricky because there is no current method for a crypto firm to register with the SEC. So Coinbase pioneered the registration process, spending millions of dollars on legal support to create proposals for the SEC. However, after spending nine months creating potential methods Coinbase met with the SEC 30 times and did not receive any feedback or questions regarding its suggested methods.
After undergoing this process, Coinbase said it is ultimately looking for guidance. “If our regulators cannot agree on who regulates which aspects of crypto, the industry has no fair notice on how to proceed,” said Coinbase Chief Legal Officer Paul Grewal. “Against this backdrop, it makes no sense to threaten enforcement actions against trusted public companies like Coinbase who are committed to playing by the rules. It makes even less sense to threaten enforcement actions unless an industry participant concedes that non-securities can be regulated by the SEC. That is for Congress to decide.”
Other SEC targets
Coinbase is not the only crypto-related organization the SEC has targeted in recent years. Stablecoin issuer Paxos, cryptocurrency exchange Kraken, USDC-creator Circle, and real-time money movement platform Ripple have each gone into battle with the SEC.
One of the above crypto firms the SEC has targeted, Circle, is doubling-down on its business in more crypto-friendly pastures. The Massachusetts-based company announced earlier this month that it has selected France as its European headquarters. Additionally, Circle recently filed applications in France to become both a licensed Electronic Money Institution and a registered Digital Asset Service Provider (DASP) in the nation.
What’s next?
Coinbase, which is publicly listed on the NASDAQ, has made it clear it is doing its best to be forthcoming and honest, and that it believes it is not breaking the law. “Tell us the rules and we will follow them. Give us an actual path to register, and we will register the parts of our business that need registering,” said Grewal. He concluded by saying that if U.S. regulators continue to threaten the good actors in the crypto industry, they will ultimately drive innovation, jobs, and the entire industry overseas. If Circle’s recent move is any indication, the U.S. may be saying, “au revoir” to the entire crypto industry.
Photo by Sora Shimazaki
