SEC strikes again: How industry insiders view the Coinbase lawsuit
Industry insiders' perspective on SEC's Coinbase lawsuit
Following the Binance lawsuit, the SEC has also taken action against Coinbase. Coinbase is the largest cryptocurrency asset trading platform in the United States, serving more than 108 million customers. The SEC believes that Coinbase engaged in unregistered securities issuance and sales activities related to its staking program, depriving investors of important information regarding Coinbase and its staking plan products, including how Coinbase uses the proceeds from the offering and the risks and trends affecting the company and the securities being invested in. Coinbase has responded to this, and others in the industry have also spoken out.
Blocking summarizes the various opinions below.
SEC vs. Coinbase: “Unregistered” and “Harm to Economic Competitiveness”
SEC believes that Coinbase violated the contents of the Securities Act, the Trade Act and other code contents due to a series of “unregistered” behaviors. Coinbase believes that the current rules of the digital asset industry are incomplete, and that the SEC’s actions are actually damaging the competitiveness of the US economy.
SEC: Coinbase has never registered with the US Securities and Exchange Commission (SEC) as a broker, national securities exchange, or clearing agency, thereby evading the disclosure system established by Congress for our securities market. Coinbase also operated as an unregistered broker through the other two services it provides to investors, Coinbase Prime (“Prime”) and Coinbase Wallet (“Wallet”). Since 2019, Coinbase has engaged in the unregistered issuance and sale of securities through its cryptocurrency staking program (“Staking Program”).
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Summary of SEC’s lawsuit against Coinbase
SEC elaborates on three unregistered violations of Coinbase
Coinbase: In the absence of clear rules for the digital asset industry, the enforcement actions of the US Securities and Exchange Commission have harmed the economic competitiveness of the United States and companies like Coinbase that have clear commitments to compliance. The solution is legislation that allows for transparent and fair road rules to be established, not litigation. In the meantime, we will continue to operate as usual.
Cryptocurrency exchange Coinbase Inc. said it is willing to continue its legal battle with the U.S. Securities and Exchange Commission (SEC) over tokens it believes are listed securities all the way to the U.S. Supreme Court.
Blockingul Grewal, Coinbase’s top lawyer, said in an interview: “If it takes going to the Supreme Court, that’s what we will do, and I believe every court that has examined this issue will come out the same way, that the SEC fundamentally got this wrong.”
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Coinbase responds to SEC: Clear legislation is the solution, Coinbase will continue business as usual
Coinbase: If necessary, it will take its legal battle with the US SEC to the Supreme Court
Other US regulators speak out:
Ten states in the US have taken legal action against Coinbase for violating securities laws, including Illinois, Vermont, Alabama, Kentucky, California, Maryland, Wisconsin, Washington, New Jersey, and South Carolina. According to previous reports, the New Jersey Securities Department decided to impose a $5 million fine on Coinbase for selling unregistered securities to residents of the state without registering in the state.
New Jersey: Has launched an investigation into Coinbase’s cryptocurrency pledge product sales violations and issued a brief cease-and-desist order. The New Jersey Securities Department decided to impose a $5 million fine on Coinbase for selling unregistered securities to residents of the state without registering in the state.
Alabama: Accused Coinbase’s pledge plan of violating state securities laws. Coinbase has 28 days to explain to the Alabama Securities Commission (ASC) how its pledge plan does not violate state securities laws.
Industry perspectives are mixed, with some supporting the SEC and some supporting Coinbase. However, overall, due to the SEC’s frequent actions, industry insiders tend to speak out in groups.
Supporters of the SEC:
SEC Chairman Gary Gensler: The US Securities and Exchange Commission (SEC) is working to protect investors from hype and fraudsters. What we need to prove is that digital currency is a security, and they should be properly registered and have a rulebook to prevent fraud, manipulation of exchanges, brokers, etc., and we are very confident about this. We don’t need more digital currencies, we already have digital currencies. It’s called the dollar, euro, or yen, and they are all digital now. We already have digital investments. Lawsuits against cryptocurrency platforms take time due to the requirements of the process. Investors should trust that the SEC is very concerned about the risks in the field of digital currencies.
CZ: If you are fighting against everyone, you may be wrong.
Justin Sun: At this challenging moment, I express my support for Coinbase and the entire crypto community. As a united community, we will work together to steer the constantly evolving landscape and build a stronger and more resilient future for cryptocurrency. Stay strong and keep pushing boundaries!
Ripple CEO Brad Garlinghouse: If you weren’t clear before, you should be now – SEC Chairman Gary Gensler’s stated “support of innovation” is not real. This tells us why the SEC is suing Coinbase and Binance – to distract from their inaction on FTX.
a16z Policy Head Brian Quintenz: Today’s action by the SEC continues an irresponsible pattern of regulation by enforcement that harms entrepreneurs, investors, and consumers while potentially stifling innovation and driving responsible companies out of the United States. Coinbase has been a responsible industry participant for over a decade, helping to pioneer Web3 in the United States. As a public company, it has repeatedly attempted to register with the SEC and has long called for regulatory clarity, but has received no action from regulators. Enforcement actions cannot substitute for guidance. Litigating against third parties over whether specific tokens are securities is inappropriate and does nothing to protect consumers or provide clarity to the market. Instead, the SEC should work with market participants to modernize rules and clarify their application.
Blockchain analysis company CEO Alex Svanevik: Humans will be worse off because of Gary Gensler, resign.
Blockchain Association Chief Policy Officer Jake Chervinsky: “For years, the SEC has failed to provide useful guidance or conduct effective rulemaking, all while falsely claiming that ‘the law is clear.’ The SEC tells exchanges to ‘come register,’ but refuses to explain how to do so. It’s absurd! Angry, at the SEC’s underhanded tactics and overtly hostile actions, and furious at the SEC’s brazen disregard for its own mission. Comforted, that the SEC has finally taken action, and the results aren’t so bad? Life and business go on.”
ShapeShift founder Erik Voorhees: “The impotent lord struggles in his tottering castle while civilization establishes itself around him. His subjects are at first afraid, then angry, then amused, and finally they are no longer his subjects.”
Bankless co-founder Ryan Sean Adams: “Failed to catch FTX ($8 billion fraud and bankruptcy); failed to protect Grayscale investors ($8 billion devaluation); failed to protect borrowers of Voyager, Genesis, and BlockFi (bankruptcies totaling over $4 billion). Gensler is an impotent bad regulator.”
Details please click: SEC Crackdown Big V Can’t Sit Still
The impact of SEC’s lawsuit against Coinbase on cryptocurrency prices and Coinbase and other platforms
The impact on Coinbase:
In the past hour, since Coinbase was publicly sued by the US Securities and Exchange Commission (SEC), except for Bitcoin, Coinbase users’ net outflow on multiple chains is about US$57.7 million, of which US$43.1 million comes from Coinbase Custody. Coinbase (COIN.O) fell more than 12% before market opening.
In the past two days, Coinbase CEO Brian Armstrong’s net worth has shrunk by $361 million to $2.2 billion, and Binance CEO Zhao Changpeng’s net worth has shrunk by $1.4 billion to $26 billion. Because the US SEC sued two companies for violating securities rules, the stocks and tokens of several cryptocurrency-related companies plummeted.
The impact on other platforms:
The market value of the US dollar stablecoin Binance USD (BUSD) issued by Blockingxos has fallen below the $5 billion mark.
In the past 48 hours, the median trading volume of the top three decentralized exchanges (DEX) has surged by 444%.
Other related dynamics:
The US House of Representatives Financial Services Committee announced on its website: It will hold a hearing entitled “The Future of Digital Assets: Providing Clarity to the Digital Asset Ecosystem” at 2:00 pm on June 13th local time (early morning of June 14th Beijing time).
SEC: After suing Binance and Coinbase, the SEC has now classified more than $120 billion in tokens as unregistered securities. In the Coinbase case, the SEC defines SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO as securities.
Former Chairman of the U.S. Commodity Futures Trading Commission (CFTC), Timothy Massad: The future of cryptocurrency will depend on the outcome of the recent government lawsuits against crypto exchanges Binance and Coinbase. According to Massad, the government and the Securities and Exchange Commission (SEC) must create a new industry framework to protect investors, prevent fraud and manipulation, and ultimately answer the controversial question: whether digital tokens are securities.
Ashok Ayyar, Lawyer at Ashbury Legal: “For Coinbase, this case is a matter of life and death because it is more focused on the US market. Coinbase is expected to engage in fierce litigation.”
Former SEC Commissioner and Robinhood Chief Legal and Compliance Officer Dan Gallagher: “We are actively reviewing the SEC’s analysis to determine what action, if any, should be taken in this regard.”
Chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam: I’m not going to take away any legislative or legal authority that the CFTC may get from anyone else. Currently, we have a regulatory vacuum with the SEC, and there is a gap in the regulation of digital commodity assets. The fact is that Bitcoin is a commodity, as ruled by US courts, and is unregulated under US law. Enforcement regulation is not managing the market, it is fully protecting customers or promoting innovation in an appropriate way.
Cryptocurrency law firm Gresham International: Given the regulatory climate in the US, it is advisable for crypto companies not to do business within the US. They also suggest that the US’s regulatory policy is becoming unpredictable, indicating that crypto is unwelcome, even for those who try to comply with the rules. Companies operating in the US should expect to be fully registered as securities or commodity trading firms, which will cancel many of their international protections.