SEC’s Unexpected Request to Coinbase

In a surprising move, the US Securities and Exchange Commission (SEC) asked Coinbase, a leading cryptocurrency exchange, to halt trading in all cryptocurrencies other than Bitcoin. This request came before the SEC launched legal action against Coinbase for failing to register as a broker.

Regulatory Authority Over Cryptocurrencies

Coinbase CEO, Brian Armstrong, revealed that the SEC’s request indicated the agency’s intent to assert regulatory authority over a broader slice of the market. The SEC identified 13 lightly traded cryptocurrencies on Coinbase’s platform as securities, asserting that by offering them to customers, the exchange fell under the regulator’s remit.

Cryptocurrencies as Securities: The SEC’s Stance

The SEC’s recommendation for Coinbase to delist every one of the more than 200 tokens it offers, except for the flagship token Bitcoin, suggests that the SEC, under chair Gary Gensler, is pushing for wider authority over the crypto industry. Armstrong stated, “They came back to us, and they said . . . we believe every asset other than Bitcoin is a security.”

Implications of Delisting Cryptocurrencies Except Bitcoin

If Coinbase had agreed to this, it could have set a precedent that would have left the vast majority of American crypto businesses operating outside the law unless they registered with the commission. Armstrong added, “We really didn’t have a choice at that point, delisting every asset other than Bitcoin, which by the way is not what the law says, would have essentially meant the end of the crypto industry in the US.”

Potential Impact on US Crypto Industry

Oversight of the crypto industry has been a grey area, with the SEC and the Commodity Futures Trading Commission jockeying for control. Gensler has previously said he believes most cryptocurrencies, with the exception of Bitcoin, are securities. However, the recommendation to Coinbase signals that the SEC has adopted this interpretation in its attempts to regulate the industry.

Regulatory Gray Area: SEC vs. Commodity Futures Trading Commission

The SEC’s stance could bring far more stringent compliance standards. Crypto exchanges typically also provide custody services, and borrow and lend to customers, a mix of practices that is not possible for SEC-regulated companies.