SEC Pressures Coinbase To Delist Non-Bitcoin Cryptos

The US Securities and Exchange Commission (SEC) asked Coinbase, a prominent cryptocurrency exchange, to halt trading in all cryptocurrencies except bitcoin before suing the company, indicating the regulator’s intent to assert broader regulatory authority over the crypto market. The legal action against Coinbase, a Nasdaq-listed company, was initiated last month by the SEC for allegedly failing to register as a broker. As part of its case, the SEC identified 13 cryptocurrencies, mostly lightly traded, on Coinbase’s platform as securities, arguing that offering them to customers brought the exchange under its regulatory oversight.

SEC vs. Coinbase

Coinbase CEO Brian Armstrong revealed that the SEC had requested the exchange to delist over 200 tokens it offers, with the exception of bitcoin. This request showcased the SEC’s efforts, under chair Gary Gensler, to exert wider control over the cryptocurrency industry. Armstrong recounted, “They came back to us, and they said… we believe every asset other than bitcoin is a security… we’re not going to explain it to you, you need to delist every asset other than bitcoin.” However, this approach could have established a precedent that left the majority of American crypto businesses operating outside the law unless they registered with the commission.

Armstrong asserted that agreeing to the SEC’s request would have effectively meant the end of the crypto industry in the US, leading Coinbase to decide to challenge the regulatory action in court instead. Oversight of the crypto industry has been ambiguous, with both the SEC and the Commodity Futures Trading Commission (CFTC) vying for control. While Gensler has previously expressed his view that most cryptocurrencies, except bitcoin, are securities, the recommendation to Coinbase indicates that the SEC is applying this interpretation to regulate the industry.

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Compliance Impact for Crypto

Surprisingly, the SEC’s case against Coinbase did not include ether, the second-largest cryptocurrency, which is integral to many industry projects. Additionally, ether was not listed as one of the “crypto asset securities” in the SEC’s lawsuit against Binance, the largest crypto exchange. The SEC stated that its enforcement division did not make formal requests for companies to delist crypto assets. However, this move by the SEC could have significant implications for the crypto industry, as it would bring stricter compliance standards for exchanges and other crypto businesses.

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The debate over whether all crypto tokens should fall under the SEC’s purview remains ongoing, and a settlement involving Coinbase delisting non-bitcoin tokens would undoubtedly impact other players in the industry. Crypto companies built on the assumption that these tokens are not securities may face challenges, and it might require intervention from Congress to clarify regulations around public offerings and retail trading of tokens. The SEC declined to comment on the broader implications of a settlement involving Coinbase’s delisting decision.