7th June 2023 > > Coinbase.

tl;dr

The SEC has now sued Coinbase.

Market Snap

Market Wrap

Both BTC and ETH are back above where they were trading before the Binance showing just how resilient the crypto market is, for now. The leveraged children got caught short so some of this regained territory is because of a short squeeze.

Attention now turns to June 13th, less than a week away, at which point we might get more clarity on whether XRP (Ripple) is a security or not.

Curious Cryptos’ Commentary – Coinbase

The SEC (Securities and Exchange Commission) has sued Coinbase claiming that Coinbase quoted at least 13 cryptos that the SEC claims are securities without registering to do so. This follows the day after the SEC sued Binance (https://www.curiouscryptos.com/post/6th-june-2023-binance).

Gary Gensler, Chair of the SEC, explains the purpose of these lawsuits:

"The whole business model is built on a noncompliance with the U.S. securities laws and we're asking them to come into compliance.”

That seems to be over-egging it to me – “… whole business model” isn’t correct.

It is true that there is little clarity on which coins are securities or not, if any. The SEC has successfully laid claim to a few minor coins through enforcement actions, but what is interesting here is that the SEC has not included ETH in the list of securities traded by Coinbase. Whilst at MIT Gensler gave a lecture stating that ETH was not a security, and previously staff at the SEC had agreed with that stance, a point central to the SEC vs Ripple Labs court case. Though Gensler recently reversed his position on ETH it looks like he has done another screeching U-turn.

Coinbase CEO Brian Armstrong tweeted:

“Regarding the SEC complaint against us today, we're proud to represent the industry in court to finally get some clarity around crypto rules.

Remember:

1. The SEC reviewed our business and allowed us to become a public company in 2021.

2. There is no path to "come in and register" - we tried, repeatedly - so we don't list securities. We reject the vast majority of assets we review.

3. The SEC and CFTC have made conflicting statements, and don't even agree on what is a security and what is a commodity.

4. This is why the US congress is introducing new legislation to fix the situation, and the rest of the world is moving to put clear rules in place to support this technology.

Instead of publishing a clear rule book, the SEC has taken a regulation by enforcement approach that is harming America. So if we need to avail ourselves of the courts to get clarity, so be it.

Btw, in case it’s not obvious, the Coinbase suit is very different from others out there – the complaint filed against us is exclusively focused on what is or is not a security. And we are confident in our facts and the law.

We'll get the job done. In the meantime, let's all keep moving forward and building as an industry. America will get this right in the end.”

I think that’s classified as fighting talk.

…

There has been discussion around the fact that the public listing of Coinbase was signed off by the SEC.

Though that might appear on the face of it to be a get-out clause for Coinbase, it isn’t as simple as that (https://twitter.com/JoeCarlasare/status/1666069135388815361/photo/1):

“The SEC generally does not provide advance guidance or confirmation on the status of any particular crypto asset as a security”.

That’s the SEC hedging its bets, though I suspect this isn’t a good look for the SEC. The SEC’s job is to protect investors’ interests. Not setting out clear rules for market participants suggests the SEC is failing in its principal objective.

…

What happens next?

Any court case is going to take years to resolve. Meanwhile the growing politicisation of cryptos in the US particularly suggests that little or no progress can be made legislatively this side of the next US election, and probably not even after then.

We can expect Coinbase and Binance to increasingly focus on developing their business in Europe following the adoption of MiCA (Markets in Crypto Assets).

Meanwhile US citizens will likely find it ever more difficult to buy and sell cryptos.

Most thrillingly of all, the probability that the SEC has brought these two legal actions as a smokescreen for losing the Ripple case has just gone up.