Before suing Coinbase, the US Securities and Exchange Commission (SEC) requested the exchange to suspend trading in all cryptocurrencies except for bitcoin, signaling the agency’s intent to assert regulatory authority over a wider portion of the market.
Brian Armstrong, the CEO of Coinbase, revealed that the SEC made this recommendation before taking legal action against the company, accusing it of failing to register as a broker. In its case, the SEC identified 13 cryptocurrencies offered on Coinbase’s platform, mostly lightly traded, as securities, asserting its regulatory jurisdiction over the exchange for offering them to customers. However, the prior request from the SEC to delist all of the over 200 tokens offered by Coinbase, except for bitcoin, indicates the agency’s push for broader authority over the cryptocurrency industry under the leadership of Chair Gary Gensler.
Armstrong stated that the SEC insisted that every asset, except for bitcoin, should be considered a security without providing an explanation for their conclusion, leading Coinbase to have no choice but to face legal action. Compliance with the SEC’s request could have set a precedent that would force the majority of American crypto businesses to operate outside the law unless they registered with the commission.
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To protect the crypto industry in the US, Coinbase decided to challenge the SEC in court to clarify the legal status of the assets in question and find out what the court’s ruling will be. According to a CoinDesk article published earlier today, Armstrong’s disclosure, made in an interview with the Financial Times (FT), sheds light on the SEC’s stance towards cryptocurrencies other than Bitcoin. According to Armstrong, the SEC’s recommendation left Coinbase with no other option but to seek legal recourse.
The Coinbae CEO apparently told FT:
They came back to us, and they said?.?.?. we believe every asset other than bitcoin is a security … And, we said, well how are you coming to that conclusion, because that’s not our interpretation of the law. And they said, we’re not going to explain it to you, you need to delist every asset other than bitcoin.”
As Tekedia reported last month, the U.S. Securities and Exchange Commission (SEC) charged Coinbase, Inc., a leading crypto asset trading platform, with operating as an unregistered national securities exchange, broker, and clearing agency. The SEC also accused Coinbase of failing to register the offer and sale of its crypto asset staking-as-a-service program, according to the SEC’s press release.
The SEC alleges that since 2019, Coinbase has unlawfully facilitated the buying and selling of crypto asset securities, intertwining the traditional services of an exchange, broker, and clearing agency without proper registration. The SEC further claims that Coinbase’s failure to register has deprived investors of significant protections, including SEC inspection, recordkeeping requirements, and safeguards against conflicts of interest.
Armstrong’s revelations suggest that the SEC viewed Ether – $ETH, the second-largest cryptocurrency, as a security before suing Coinbase. This stance is in line with SEC Chair Gary Gensler’s previous suggestions that all cryptocurrencies other than Bitcoin are securities. However, it’s important to note that the views of Gensler, the four SEC commissioners, and SEC staff do not necessarily reflect the institution’s official position unless explicitly stated as such.
