SEC Chairman Gary Gensler’s move against Binance and Coinbase is the latest in a string of enforcement actions the SEC has taken against cryptocurrency companies since the FTX bankruptcy seven months ago. has spooked investors and sent some executives abroad in search of new business. However, the long-awaited lawsuit against Coinbase is expected to be the biggest brawl yet over the loosely regulated US cryptocurrency industry.
If successful, the SEC will reaffirm the overarching powers it has asserted over cryptocurrencies, and the powers that courts have upheld to date, in a high-profile lawsuit. However, as Wall Street regulator lawsuits could pose an existential threat to the company’s business, Coinbase has made clear that it will take SEC cases all the way to the Supreme Court if necessary.
Coinbase Chief Legal Officer Paul Grewal has criticized the SEC’s sole focus on enforcement in cryptocurrency trading and called for “legislation to allow fair rules on the road.” He said Coinbase plans to continue business as usual.
“In the absence of clear rules for the digital asset industry, the SEC’s reliance on an enforcement-only approach has demonstrated the competitiveness of the U.S. economy and Coinbase’s commitment to compliance,” Grewal said in a statement. It’s hurting companies like this,” he said.
The cryptocurrency industry is calling on members of the Capitol to pass legislation that could weaken the SEC’s power in the cryptocurrency market. Grewal is scheduled to testify before the House Agriculture Committee on Tuesday to discuss a recent crypto bill proposed by Republican lawmakers.
Coinbase is over 10 years old and has long established itself as the rare cryptocurrency company that embraces regulation. The company has fueled its growth with a handful of state and federal licenses over the years while following what it calls a “robust listing process” to determine which tokens violate US securities laws.
But the SEC called the company’s insistence on complying with U.S. law “lip service.”
Appearing on CNBC shortly after the Coinbase accusations, Gensler said that crypto exchanges’ failure to comply with U.S. securities laws “hurts the entire capital market.”
“Some sectors run around like the Wild West and say ‘catch it if you can’ and it’s undermining confidence in the $100 trillion capital market,” he said.
If a financial institution like the New York Stock Exchange also ran hedge funds trading against investors on its platform, the public would be “shocked,” he said.
The SEC believes that a total of 13 crypto assets traded and offered on Coinbase should be treated as stocks and bonds, but has designated them to remain unregistered. The agency also said Coinbase should have registered a staking program, a service that allows investors to earn money by staking crypto tokens.
Gensler, an active regulator who headed the Commodity Futures Trading Commission during the Obama administration, also cut into the usefulness of most crypto assets.
“We don’t need any more digital currency. We already have a digital currency. It’s called the US dollar. It’s called the euro. It’s called the yen. Now they’re all digital. We are already making digital investments,” he said.
“So what is the real underlying value of these tokens?” he said. “That is why fair and truthful disclosure is necessary.”
