Coinbase, the leading cryptocurrency exchange in the U.S., has responded to the Wells Notice it received from the Securities and Exchange Commission (SEC) by urging the regulator not to pursue enforcement action against the company. Coinbase became publicly traded in April 2021, and its listing on Nasdaq led the company to believe that the SEC found no violations of securities laws. In its response to the notice, Coinbase warned the SEC that it may cause reputational harm and that the agency may discourage other firms from prioritising compliance if it decided to go after Coinbase. Coinbase clarified that its platform does not list securities, its Coinbase Wallet product does not constitute a broker, and its staking services do not constitute a securities offering.
Regulators’ Closer Scrutiny of Crypto Exchanges
Coinbase’s response to the SEC may help prevent regulatory issues for the company in the future. The regulators are now looking at exchanges and cryptocurrency more closely following the FTX’s failure in 2020 because of the apparent mismanagement of founder Sam Bankman-Fried that gave way to many criminal charges against him. What’s unusual about the SEC’s enforcement path is that the agency appeared to have acknowledged that it had no authority for enforcement actions against Coinbase in April 2021, but since then, it has changed its stance despite a legislative identical from two years ago.
Battling with the SEC
The SEC’s strategic restructure doesn’t come without casualties. Kraken was hit with a fine over its staking business, and Coinbase disclosed receiving a Wells Notice in relation to its staking products not long after Kraken was fined. Further to this, Coinbase disclosed that it is suing the SEC over Coinbase’s “petition for rulemaking,” meant to receive results distinct and separate from vague and broad confirmations. These ramifications may suggest that routine regulatory compliance might cost too much and push smaller exchanges no longer to seek a fate in mainstream adoption but any decrease in centralisation, adhering to irreversible barriers. Coinbase’s legal involvement seems almost strategic in 2021 following results from ongoing lawsuits against it since its listing.
[h/t André Beganski]