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Coinbase CEO says SEC's Gensler is the outlier for refusing to provide guidance, but they still have the courts and Congress
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(Kitco News) -
Coinbase CEO Brian Armstrong was interviewed by journalist Sonali Basak on the first day of Bloomberg Invest New York 2023, and he used the opportunity to stand up for his company in the wake of the SEC’s lawsuit against them.
“This was not unexpected,” Armstrong said. “We've been in discussion with the SEC for a long, long time. Even going back to before we were a public company, we started sharing with them how we operate our business, how we list assets on the platform, how we think about our staking program, a large number of dialogues back and forth. They allowed us to become a public company.”
Armstrong said he watched the agency’s tone begin to change over the past year, and they started asking more questions about the business. “We were very forthcoming,” he said. “We met with them probably 30 times over the last year, and we started to ask them for feedback. We said, ‘we would like there to be a robust market in the U.S. to trade crypto securities. Of the 1000-plus assets we've reviewed today, we've rejected 90 percent of them. The ones we trade, we believe are commodities. What feedback do you have for this for us? How can we come in and register? How can we work together?’ And unfortunately, we were met with silence.”
He said that Coinbase received no feedback or guidance during the 30 meetings. Then, when the SEC finally scheduled a meeting to provide feedback, they canceled it only a few days before, and the company received a Wells notice a few days after that.
“It's really unfortunate,” Armstrong said. “We work with regulators all over the world, other regulators here in the U.S. I think I'm a reasonable person to get along with. But unfortunately, the SEC under this Chair has taken a regulation-by-enforcement approach instead of creating a clear rulebook in the US that can allow this industry to be built in a safe and trusted way.”
Armstrong said that he attempted to meet with Gary Gensler personally a number of times, and finally secured a virtual meeting, where he received an icy reception from the SEC Chair. “We sort of came in, hat in hand, and said, ‘Chair Gensler, you've asked people to come in and register. Respectfully, we're here to register. What would you like us to do? What process would you like us to go through?’ And his response was, ‘talk to your lawyer, I'm not here to advise you.’
In a follow-up conversation later in the day, Armstrong expanded upon the challenges and opportunities of doing business in the United States, and said Coinbase would go all the way to the Supreme Court if necessary.
“I think it is an important opportunity for us as a leader in the U.S. to get clarity for this industry, and for America, so we make sure this technology is built here and does not get pushed offshore where customers can get harmed,” Armstrong said. “Unfortunately, they decided to pursue this policy of regulation by enforcement.”
When asked if they were considering leaving the U.S. for a more welcoming jurisdiction, Armstrong said they weren’t going anywhere.
“I started this company in the U.S. because not only is it a big market, there is the rule of law here,” he said. “We have to follow the rule of law, and so does the SEC. If we are not getting a clear rulebook from the SEC, we have the opportunity to avail ourselves of the court and we will get case law created, regardless of what the case is. It is a step towards more clarity.”
Armstrong said their other recourse is for the United States Congress to act. “We saw a bill last week from McHenry and Thompson clarifying, this is the role of the CFTC and the SEC, and let's have consumer protections,” he said. “There is a broad recognition within Congress that the U.S. will get left behind. The UK, Hong Kong, Singapore, the UAE are saying ‘we want to be crypto and Web3 hubs, come here and build your business.’”
When asked whether he thought a change in administration could spur more regulatory clarity, he said that the current administration seemed quite willing to engage constructively with the industry, and the problem was at the head of the SEC.
“I think the SEC Chair is a bit of an outlier in the U.S. government,” Armstrong said. “Congress seems interested in crafting legislation. The Biden administration put out an executive order saying ‘we recognize the potential of this technology and we want to make sure the risks are mitigated.’ They asked the branches of government to introduce this. We are seeing some of the presidential candidates for next year start to talk about their stances on crypto and how it should be regulated. There is a good chance this becomes a relevant issue in the 2024 elections.”
Asked if the “overhang” of the current regulatory approach leading into the election might scare investors away, the Coinbase CEO pointed to the bullishness and resilience of the crypto market in the face of the SEC’s actions.
“This news came out, and it surprised me that crypto was up,” he said. “What I interpret from this is the SEC's rhetoric has been clear and they have been making lots of statements. If there is overhang it has probably been there for a while, and I do not think anybody was surprised by this news.”
Armstrong said their investors are long-term believers in the technology. “If others are fearful, it is probably an interesting buying opportunity,” he said. “They are excited about this as one of the three or four major technology trends happening in the world. Smart investors recognize that the U.S. is not going to sit on the sidelines.”
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