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(Kitco News) - Coinbase CEO Brian Armstrong said the U.S. Securities and Exchange Commission (SEC) asked the exchange to halt trading all cryptocurrencies other than Bitcoin prior to filing a lawsuit against the exchange on June 6.
According to a report from the Financial Times (FT), Armstrong said the SEC made the request before it launched the legal action against Coinbase for allegedly operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency, and failing to register the offer and sale of its crypto asset ‘staking-as-a-service’ program.
“They came back to us, and they said . . . we believe every asset other than Bitcoin is a security,” Armstrong said. “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.”
The SEC’s lawsuit also claimed that 13 tokens traded on Coinbase – Solana, Cardano, Polygon, Filecoin, The Sandbox, Axie Infinity, Chiliz, Flow, Internet Computer, Near, Voyager Token, Dash and Nexo – qualify as securities. The regulator argued that by offering these products to customers, the exchange fell under the regulator’s jurisdiction.
Coinbase currently offers access to nearly 200 tokens, and this request from the SEC indicates that the agency is starting to push for wider authority over the crypto industry, despite the current legal confusion around the asset class, which was only exacerbated by the recent ruling that XRP is not a security.
Armstrong said that if Coinbase agreed to the SEC’s recommendation, it would have set a precedent that could result in the majority of American crypto businesses operating outside the law unless they registered with the regulator.
“We really didn’t have a choice at that point,” he said. “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.”
The regulatory status of digital assets in the U.S. remains murky as both the SEC and Commodity Futures Trading Commission (CFTC) are vying for oversight of the crypto industry.
Prior to the SEC’s lawsuit against Binance in June, the CFTC sued the world’s largest crypto exchange in March, highlighting the uncertainty around which regulator oversees the digital asset market.
SEC Chair Gary Gensler has repeatedly stated that he believes most cryptocurrencies, with the exception of Bitcoin, are securities, and the request to Coinbase aligns with this perspective.
Curiously, Ether (ETH) was not mentioned in the request sent to Coinbase or in the lawsuits filed against the exchange or its competitor Binance, indicating the agency has yet to make a definitive decision on how it classifies the second-ranked crypto by market cap.
In response to the comments from Armstrong, the SEC told the FT its enforcement division did not make formal requests for “companies to delist crypto assets.”
“In the course of an investigation, the staff may share its own view as to what conduct may raise questions for the commission under the securities laws,” the regulator added.
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| Former SEC attorney warns investors: Get out of crypto platforms now |
One of the main concerns the SEC has with cryptocurrency exchanges is that they have no system of checks and balances. As opposed to traditional brokerage firms, most crypto exchanges offer trading services, provide custody, and also borrow and lend to customers, which is a combination of practices that are not permitted for SEC-regulated companies.
“There are a bunch of American companies who have built business models on the assumption that these crypto tokens aren’t securities,” said Charley Cooper, former CFTC chief of staff. “If they’re told otherwise, many of them will have to stop operations immediately.”
For companies like Coinbase, being forced to only offer access to Bitcoin would effectively destroy their business models and could potentially result in them going out of business, which means these companies are not likely to yield to the SEC without a fight.
“This case is absolutely important for the crypto industry in the United States,” said Chris Martin, Head of Research at Amberdata. “While a majority of token trading on Coinbase does consist of Bitcoin, it would likely be difficult for the exchange to stay in business in its current capacity – current revenues are mainly based on trading volumes. In fact, the market seems to agree with the move and we've seen the stock double in price since the [spot Bitcoin ETF] SEC filings, and almost all other crypto-related public companies have been up since June.”
