SEC "Request" Would Have Killed Crypto Industry, Says Armstrong
The SEC wanted Coinbase to delist every crypto, except for bitcoin - forcing the exchange to go to court.
The US Securities and Exchange Commission (SEC) asked Coinbase to halt trading in all cryptocurrencies other than bitcoin, CEO Brian Armstrong has told the Financial Times. Since this would effectively have destroyed the crypto industry in the US, the exchange had no choice but to go to court.
In the interview, Armstrong explained that the SEC made their request prior to initiating legal action against the exchange for allegedly failing to register as a broker. The SEC's case specifically identified 13 cryptocurrencies on Coinbase's platform as securities, but actually requested that Coinbase delist over 200 tokens, with the exception of bitcoin: The only crypto the agency believes is not a security.
"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."
Had Coinbase complied with the SEC's demand, it could have set a precedent that would have left the majority of American crypto businesses operating outside the law, unless they registered with the commission (a process most crypto organizations to date have found is more trouble than it's worth, simply putting them in the agency's cross-hairs). Armstrong emphasized that this action would have effectively spelled the end of the crypto industry in the US. Faced with this unenviable choice, Coinbase decided to challenge the SEC's position in court, seeking legal clarity on the matter.
Hostile Regulatory Landscape
Oversight of the crypto industry has been a gray area, with both the SEC and the Commodity Futures Trading Commission (CFTC) seeking control. The CFTC had previously sued Binance, the largest crypto exchange, leading to further complexities in the regulatory landscape.
SEC Chairman Gary Gensler has expressed his belief that most cryptocurrencies, except for bitcoin, should be considered securities. The SEC's recommendation to Coinbase appears to affirm this stance and reflects the agency's effort to tighten its grip on crypto regulation.
Ether (ETH), the second-largest cryptocurrency, was notably absent from the SEC's case against Coinbase. Additionally, the SEC stated that its enforcement division did not formally request "companies to delist crypto assets." However, this move has raised questions about the SEC's intentions and its willingness to assert authority over the crypto industry.
SEC-led oversight would almost certainly introduce more stringent compliance standards for crypto exchanges. Currently, these platforms often provide a mix of services, such as custody, borrowing, and lending, which would not align with SEC regulations for traditional financial instruments. Additionally, several American companies have structured their business models around the assumption that most crypto tokens are not securities. If the SEC's interpretation prevails, these companies may be compelled to halt operations.
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