On June 6, 2023, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Coinbase, Inc., one of the leading cryptocurrency exchanges in the world, alleging that the company has been operating as an unregistered national securities exchange, broker, and clearing agency: https://storage.courtlistener.com/recap/gov.uscourts.nysd.599908/gov.uscourts.nysd.599908.1.0.pdf
In this post, I would like to reflect on this from a CEO’s point of view.
1. SEC’s Claims: Allegations of Operating as Unregistered Securities Exchange
The SEC’s complaint alleges that since 2019, Coinbase has unlawfully facilitated the buying and selling of crypto asset securities, intertwining the traditional services of an exchange, broker, and clearing agency without having registered any of these functions with the Commission as required by law. The SEC also alleges that Coinbase’s staking-as-a-service program constitutes an unregistered securities offering, as it allows customers to earn profits from the “proof of stake” mechanisms of certain blockchains and Coinbase’s efforts. This comes as no surprise, and I see this as an attack on the entire crypto ecosystem. COIN dropped by 15% in pre-market open.
2. A Different Situation Than Binance
In contrast to the allegations against Binance, another major cryptocurrency exchange, there are no allegations of fraudulent behavior or misconduct against Coinbase. The charges against Binance include allegations of misleading American customers about protection against market manipulation, and the company’s involvement in a secret program to evade U.S. laws. Coinbase’s case is focused solely on the unregistered operation of securities services and offering, without claims of intentional deceit or malpractice.
3. The Prometheum Example: Finra Regulated
As of the time of writing this article, Prometheum has emerged as an exemplary model in the crypto-asset industry, as it operates as a FINRA-regulated broker-dealer. This may be a reason why the SEC feels confident in the lawsuit against Binance and Coinbase: https://cryptoslate.com/prometheum-becomes-first-crypto-company-to-secure-sec-finra-approval/
4. No TRO Issued Against Coinbase
The SEC has not issued a Temporary Restraining Order (TRO) against Coinbase, as was the case with Binance. A TRO is a court order of limited duration, often used in cases where immediate and irreparable harm is likely to occur before the court can hear the full case. In the case of Coinbase, the SEC is seeking injunctive relief, disgorgement of ill-gotten gains plus interest, penalties, and other equitable relief1, indicating that the agency sees a legal resolution as the appropriate course of action.
5. Impact on “Risky Coins”
It is possible that the SEC’s action could lead to further scrutiny of the cryptocurrencies mentioned in the lawsuits, especially if they are indeed deemed to fall under the definition of a security. However, it’s worth noting that some coins, such as Bitcoin and Ethereum have previously been declared rather not to be securities, although the status remains uncertain. Personally, I think coins like DeFiChain, that didn’t do an ICO, are safer, than any coin that did an ICO.
It’s important to note that the SEC’s action is part of a larger trend of increased scrutiny of the cryptocurrency industry and I expect it to get spiked up further and further, also into the 2024 presidential election.
The outcome will have significant implications for the industry, affecting how cryptocurrencies are regulated, how companies in the sector operate and eventually, how crypto investments will perform.
Personally, I use such dips as long term buying opportunities. If you want to do so as well, you may want to use https://cakedefi.com
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Julian
CEO CakeDeFi.com
