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US Securities and Exchange Commission (SEC) staff told Coinbase last month that every crypto token it trades except Bitcoin is a security and should be delisted, sending a chilling message to the industry about the regulator’s plan to rein in cryptocurrencies.
If the crypto exchange had accepted the SEC’s stance, it “would have essentially meant the end of the crypto industry in the US,” Coinbase CEO Brian Armstrong told the Financial Times in an interview.
“They came back to us, and they said . . . we believe every asset other than bitcoin is a security,” Armstrong told the FT. “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. It kind of made it an easy choice . . . let’s go to court and find out what the court says.’’
"Shut down your entire business" — Is that enough regulatory clarity for the crypto industry?https://t.co/iaZ9vVci1T
— Stephen Diehl (@smdiehl) July 31, 2023
SEC Staff Declined to Explain
The request came before the SEC launched its lawsuit against Coinbase last month. The SEC staff declined to explain their interpretation of the law and thus why Coinbase should halt trading in more than 200 cryptocurrencies it lists.
“We said, well how are you coming to that conclusion, because that’s not our interpretation of the law,’’ Armstrong said. “And they said, we’re not going to explain it to you, you need to delist every asset other than bitcoin.”
When the SEC charged Coinbase with breaching securities law by trading unregistered securities on June 6, it named 13 cryptocurrencies but not Bitcoin. Ethereum, the second largest cryptocurrency by market capitaliastion, was not named in the lawsuit though the earlier request to Coinbase indicated that the SEC may consider it a security, too.
In a response to the FT article, the SEC said its enforcement division does not make formal requests for companies to delist crypto assets but that its staff “may share its own view as to what conduct may raise questions for the commission under the securities laws,’’ the story said.
SEC Suffers Ripple Setback
The SEC suffered a setback on July 13 when a court ruled that Ripple Labs, Inc.’s payments token, XRP, is not a security when sold to the public, sparking a surge in cryptocurrencies. The judge though also ruled that it is a security when sold to institutional investors, giving the SEC a partial win.
Just in case you think the #XRP win isn't big… 👀👀👀
SEC asked Coinbase to halt trading of all cryptocurrencies except Bitcoin prior to suing them. Coinbase CEO Brian Armstrong believes compliance would risk most U.S. crypto businesses operating outside the law. #xrp… pic.twitter.com/xCIJIdz8Jc
— Oskar Arnarson (@oskararnarson) July 31, 2023
The SEC’s controversial crackdown on the US crypto industry this year has received strong strong pushback from the industry and some politicians, while also prompting some companies to move overseas.
Politicians including Republicans French Hill and Dusty Johnson and Democract Ritchier Torres have written to the SEC to urge it to rethink its regulation-by-enforcement approach and work to establish a comprehensive regulatory framework for the industry.
Torres criticized the SEC’s “haphazard and heavy-handed” approach and urged it to end its ‘’crusade’’ against companies in the crypto industry.
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