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The backstory: The SEC, aka the US Securities and Exchange Commission, has been making moves to try and regulate crypto exchanges. Basically, it thinks cryptos are like stocks and bonds, so it wants them regulated the same way as those securities. But, a lot of crypto firms argue that crypto is different and needs its own set of rules. So, many of these companies have chosen not to register with the SEC, which is usually required for securities brokers, based on their interpretation of the existing laws.
SEC Chairman Gary Gensler has been vocal about his concerns surrounding crypto. He's even called the crypto world the "Wild West" and said it could impact investor trust in US capital markets. On the flip side, some of these crypto companies say the SEC's rules are fuzzy and that they're overreaching.
Last year, Coinbase, a major cryptocurrency platform, got frustrated with the SEC's unclear regulations and asked for clearer guidelines tailored to the crypto industry. But instead of getting the answers it wanted, the SEC issued a Wells notice against the firm this March, basically warning that it might take enforcement action against the company. So, in response, Coinbase decided to take the SEC to court to pressure it for more clarity on the rules.
More recently: In June, things escalated. The SEC accused Coinbase of illegal operations because it didn't register as a securities exchange. The SEC said that Coinbase traded at least 13 crypto assets that should've been registered as securities, including tokens like Solana, Cardano and Polygon. So, the SEC filed a lawsuit alleging that Coinbase was acting as a broker without proper registration. Coinbase defended itself, saying that it was following all the existing rules. It even mentioned the possibility of taking the whole case to the Supreme Court if necessary.
The development: Now, reports have emerged that the SEC asked Coinbase to stop trading all cryptocurrencies except bitcoin before taking it to court in June. According to the Financial Times (FT), Coinbase's CEO, Brian Armstrong, said complying with this request might have meant the end of the US crypto industry. So the exchange had no other option but to take the matters to the courts to get clarity on the rules.
The SEC responded to FT that its enforcement division didn't formally request the delisting of those crypto assets. Basically, it said that staff may share their “own view” on the rules during investigations, but no official requests were filed. It also declined to comment on what settling this case with Coinbase might mean for the rest of the industry, according to FT. A Coinbase spokesperson laster retracted the allegations, saying that Armstrong’s comments were taken out of context and that the SEC could only request something like that after a majority vote from its commissioners.
“They came back to us, and they said … we believe every asset other than bitcoin is a security,” said Coinbase CEO Brian Armstrong to the Financial Times. “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.”
"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," said Armstrong to FT.
"The SEC is making life nearly impossible for several altcoins, and that is actually driving some crypto traders back into bitcoin," said Ed Moya, Oanda senior market analyst, in June.
"The views shared in the FT article may have represented the views of some staff at the time but did not represent those of the Commission more broadly," said a Coinbase spokesperson in response to the Financial Times report.