Coinbase CEO Reveals SEC Requested Halt on Trading for All Assets Except Bitcoin

31 Jul 2023

Mitchell Nixon

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According to Brian Armstrong, the request would have signified “the end of the crypto industry in the US.”

Per the Financial Times, ahead of filing a lawsuit against Coinbase, the US Securities and Exchange Commission (SEC) requested the exchange to suspend trading in all cryptocurrencies except Bitcoin. This move signals the agency’s intention to extend its regulatory reach across a broader segment of the market.

We did an article on the SEC suing Coinbase here. 

Brian Armstrong, the CEO of Coinbase, disclosed to the Financial Times that the SEC made this recommendation before initiating legal action against the company. The lawsuit, launched last month, was in response to Coinbase’s failure to register as a broker.

In its case, the SEC categorised 13 cryptocurrencies, predominantly lightly traded, on Coinbase’s platform as securities, claiming that their offering to customers falls within the regulatory scope of the agency.

The notable aspect is the SEC’s prior request for Coinbase to remove over 200 tokens from its platform, excluding only the flagship token, Bitcoin. This move suggests that under the leadership of Gary Gensler, the SEC is aiming for more extensive authority over the cryptocurrency industry.

“They came back to us, and they said . . . we believe every asset other than Bitcoin is a security,” Armstrong said. “And, 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 acquiesced, it might have established a precedent wherein the vast majority of American crypto businesses would have found themselves operating unlawfully unless they registered with the commission.

“We really didn’t have a choice at that point, delisting every asset other than Bitcoin, which by the way is not what the law says, would have essentially meant the end of the crypto industry in the US,” he said. “It kind of made it an easy choice . . . let’s go to court and find out what the court says.”

Regulating the crypto industry has remained ambiguous, with the SEC and the Commodity Futures Trading Commission (CFTC) contending for authority.

The CFTC initiated a lawsuit against the largest crypto exchange, Binance, in March of this year, preceding the SEC’s legal action against the same company by three months.

We did an article on the SEC suing Binance here. 

Gary Gensler, the SEC chair, has expressed his belief that most cryptocurrencies, with the exception of Bitcoin, are considered securities. The recommendation to Coinbase indicates that the SEC has adopted this interpretation as part of its efforts to oversee the industry.

It is noteworthy that Ether, the second-largest cryptocurrency, which plays a crucial role in numerous industry projects, was not implicated in the regulator’s case against Coinbase. Additionally, it was not listed among the “crypto asset securities” specified in the SEC’s lawsuit against Binance.

The SEC’s enforcement division denied making formal requests for “companies to delist crypto assets.” However, during investigations, the staff may share their views on conduct that could raise questions under securities laws.

The ongoing debate centres on whether all or any crypto tokens should fall under the SEC’s jurisdiction. While traditional financial instruments like stocks and bonds are within the SEC’s purview, cryptocurrencies’ classification remains a topic of contention.

Bringing the crypto industry under SEC oversight would entail stricter compliance standards. Crypto exchanges often engage in diverse practices like providing custody services, lending, and borrowing from customers, which might not be feasible for SEC-regulated companies.

Numerous American companies have established business models based on the assumption that crypto tokens are not securities. If informed otherwise, many may have to halt operations immediately.

Considering the potential implications, it appears challenging to envision public offerings or retail trading of tokens without intervention from Congress.

As for the implications of a Coinbase settlement involving the delisting of all tokens except Bitcoin, the SEC has refrained from commenting on its impact on the broader industry.