Cryptocurrency trading platform Coinbase Global Inc. The U.S. Securities and Exchange Commission (SEC) threatened to sue the company if customers were allowed to earn interest on some digital tokens.
The warning also serves as a deterrent to other companies that are offering similar products or are eager to try them out, and is the clearest signal now being released by the new SEC's administrators that regulators will play a role in cracking down on those that feel risky — even before they are launched. As soon as the news came out, Coinbase fell 3.2% to $258.20 in New York.
When Gary Gensler took the helm of the SEC in April, many cryptocurrency enthusiasts were overjoyed, feeling that Gensler's background in learning about finance from the former Goldman Sachs partner, who also taught digital assets at MIT, was very different from many Washington officials who knew nothing about the crypto market.
However, this good mood soon disappeared. Gensler made it clear in both his speech and in his congressional testimony that he wanted to overhaul the cryptocurrency industry. In July, he called the industry "the barbaric land of the financial industry" and "desperately needed traffic rules." Gensler also said that the SEC will also step up measures to hold these companies accountable if the cryptocurrency offerings offer involve securities, including decentralized finance or DeFi platforms.
The point of contention is Coinbase's Lend product, which, while not yet open, promises to earn 4% per year for investors who can lend out USDC virtual tokens. USDC is a stablecoin, offered by several companies such as Coinbase, that has grown rapidly in the cryptocurrency market where traders can easily exchange digital assets for cash, or vice versa.
Coinbase's game with the SEC is well known, with Paul Grewal, the company's chief legal officer, blogging that the SEC determined that Lend was involved in "a security, but not who or how it came to that conclusion." Grewal added that the SEC informed Coinbase that "if we launch Lend, they intend to sue," so Coinbase shelved the product until at least October.
"Waiting for the rabbit"
In private, former officials at the SEC were shocked by the agency's posture and said the SFC typically announces some kind of sanctions when the companies start selling investment products. It can be seen that the SEC has found a strong response to cutting-edge cryptocurrency products that are worried about the risks to consumers.
"For the first time in so long, the SEC has been so tough," said James Cox, a professor at Duke Law School.
SEC officials declined to comment.
Coinbase has won the support of at least one longtime SEC rival: Mark Cuban. The billionaire entrepreneur sent several tweets urging Coinbase to fight back and prevent the SEC from winning a legal ruling that would otherwise give the agency more power over tokens and DeFi. In 2013, the SEC accused him of insider trading, and Cuban has since filed a grudge with the SFC.
Still, one group would be happy with the SEC's increased scrutiny of Coinbase: Democrats in the U.S. Congress. Elizabeth Warren, a Massachusetts Democrat, has repeatedly urged regulators to play a greater oversight role over the cryptocurrency market.
This article originated from the Financial Circle Network