Before suing the crypto exchange Coinbase, the U.S. Securities and Exchange Commission (SEC) reportedly requested Coinbase to halt trading in all cryptocurrencies except Bitcoin (BTC), as Coinbase CEO Brian Armstrong revealed in an interview with the Financial Times.
“They came back to us, and they said . . . we believe every asset other than bitcoin is a security,” Armstrong said, according to the FT. “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 Coinbase CEO said his company was left with no choice but to allow the matter to go to court, as compliance with the order would have meant “the end of the crypto industry in the US.” In addition to Bitcoin, the exchange offers 261 other tokens as tradable assets, and delisting alternative cryptocurrencies would significantly reduce the options available to investors.
The SEC refuted Armstrong’s claims and told the FT that it did not make any “formal requests” for “companies to delist crypto assets.”
“SEC staff does not ask 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,” an SEC spokesperson told CoinDesk.
Gensler has previously said that he believes most cryptocurrencies, with the exception of Bitcoin, are securities. However, the recommendation to Coinbase signals that the SEC has adopted this interpretation in its attempts to regulate the industry.
Paving the way for crypto regulation
The SEC sued Coinbase and its larger international rival, Binance, in early June, accusing the companies were operating illegal exchanges. The suits marked a major escalation of the SEC’s campaign to rein in the crypto industry after years of permitting it to run in a regulatory grey zone.
Crypto companies have long resisted categorising their products as traditional securities or commodities, reasoning that they are a novel form of digital asset that necessitate bespoken regulations. The SEC, on the other hand, disagrees and has frequently asserted that the majority of crypto offerings should be treated as securities, subject to the same government regulations as stocks and bonds on Wall Street.
The lawsuits against Coinbase and Binance might be pivotal in addressing the regulation issue, leading to potential litigation and judicial reviews that could motivate Congress to take action.
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