SEC Charges Coinbase With Securities Violations

In what could be a defining case for the crypto industry, the Securities and Exchange Commission (SEC) has charged Coinbase, the largest digital asset exchange in the U.S., with violating the nation’s securities laws.

The SEC alleges that Coinbase has been operating as an exchange, broker, and clearinghouse without the necessary approvals from the agency. The complaint comes just a day after the SEC charged Binance, the world’s largest crypto exchange, with similar violations.

Brain Armstrong, Coinbase’s CEO, responded to the charges on Twitter, emphasizing that the SEC cleared the company to go public in 2021 after reviewing its business operations. “There is no path to ‘come in and register’ – we tried, repeatedly,” Armstrong said. “We don’t list securities.”

The SEC’s move comes as no surprise — in March, Coinbase received a Wells Notice, a communication from the SEC that typically precedes enforcement action.

While yesterday’s action against Binance sent crypto markets reeling, today’s announcement hasn’t fazed investors. In fact, Bitcoin and Ether are up nearly 4% since the news broke, and have nearly recovered yesterday’s losses.

Coinbase shares were hit harder — COIN is down over 10% on the day.

Earlier this year, Coinbase called for American voters to make their voices heard through a grassroots effort to elect public officials who support the digital asset industry, in light of ongoing regulatory pressure.

Securities Labeling

The SEC also specifically called some digital assets securities. These include Solana’s SOL, Cardano’s ADA, and Polygon’s MATIC, each of which has a market capitalization of well over a billion dollars.

The SEC’s complaint also alleges that Coinbase’s staking service constitutes an investment contract and is, therefore, a security.

Staking generally refers to locking up digital assets in order to support a blockchain’s operations and earn a yield. Since running a node can be technically challenging for the average user, staking services like Coinbase’s stake assets on users’ behalf in exchange for 15-35% of the yield.

In response to recent regulatory pressure, Coinbase and other American exchanges, like Gemini, have established off-shore presences this year. Kraken shut down its staking services earlier this year and paid a $30M fine in order to settle charges levied by the SEC.