Coinbase received a notice of Wells from the US Securities and Exchange Commission, and company executives took to Twitter Spaces to discuss the decision and what Coinbase's next steps will be in making legal frameworks for the crypto world.
"Regulators need to come up with the rules, tell everyone the rules and we follow them," CEO Brian Armstrong said during the conversation. "The current laws are not clear and we would like to get more clarity."
According to a Coinbase filing with the SEC, Government agency staff have "informed the company that it has made a 'preliminary determination' to recommend that the SEC file an enforcement action against the company alleging violations of federal securities law."
“I think it's easy to look at the situation right now and conclude that the SEC is trying to change the game,” Paul Grewal, Coinbase's chief legal officer, said during the Twitter chat. “What is actually happening is that the SEC is trying to cancel the game after it has been played. And so we think it's very important to keep the focus on what this means [in the longer term for Coinbase and the industry].”
But existing securities laws that were put in place roughly 90 years ago simply don't work for less-intermediated digital assets that use innovative blockchain technology, said Sheila Warren, CEO of the Crypto Council for Innovation. “There are no current frameworks in the US, therefore it is not possible for crypto companies to operate in the US in a way that prevents them from facing regulatory repercussions”, Agregó.
In 2021, the SEC allowed Coinbase to go public; Through that process, the company provided extensive information to the SEC about its business, Warren said. In the company's S-1 filing, there were 57 mentions of gambling, he added. "Why didn't the SEC raise any concerns at the time?"
The Coinbase Wells notification, and the company's comments immediately afterward, indicate that subsequent developments could lead to greater regulatory clarity about when gambling becomes an activity that falls under regular securities law and when it is allowed without oversight. additional law.
"Over the next 90 days, we'll see bills being introduced, hearings being held, and potentially legislative motion taking place," Grewal said. But there is a cloud over all of it. And that's this enforcement action, which is really unfortunate in terms of providing the clarity that we need at this critical time."
In general, Coinbase has tried to take a compliance-first approach and bridge the gap between fiat and crypto, Armstrong said, adding that while the exchange has worked with various regulators, the SEC has been a pain point where they have "struggled" to have meaningful conversations.
“After asking the SEC to tell us which particular tokens they are concerned about or why gambling products might in fact fall in their jurisdictions despite our arguments and contraries, they just haven't told us anything,” Grewal said. "It's been a frustrating process."
An offshoring of crypto companies and market share alike could come “at great cost to American consumers and investors, as well as our national and economic security,” Warren said. "Other jurisdictions are establishing regulatory clarity for digital assets as they seek to take the lead in both innovation and finance, spaces in which the United States has historically dominated."
If the cryptocurrency industry doesn't get some clear ground rules, the experience will move abroad, Warren said. The US market has already seen this happen in the semiconductor industry, he added. "After letting it offshore, it's now a huge national security challenge and the White House is putting out fact sheets on how to get the semiconductors back into the United States."
In fact, companies are already moving out of the United States, said Kavita Gupta, founder and general partner of the Delta Blockchain Fund.
"We've already started to see this in the last couple of months, especially with the way the SEC couldn't handle FTX, a company that was supposedly working with them," he told TechCrunch+. “With most of the crypto-friendly banks disappearing in the US like Signature, SVB, etc, this trend continues.”
Going forward, there is a need to create clearer regulatory frameworks for digital assets in the US. Failure to do so could lag US competitive advantage and innovation, both Warren and Coinbase executives hinted.
The “only silver lining” from the SEC’s Wells notice is that there is now a transparent and open dialogue in court between the agency and Coinbase, Gupta said. Until now, the US and the SEC have been working in a very gray area and have not provided a clear and comprehensive legal framework on how crypto products must comply with their rules, she added. "People are willing to pay taxes and ready to work with the government if there is a structured and clear regulatory framework, which we haven't seen in the space."
While Wells' notice was issued and the company has publicly responded, it will be interesting to see how it plays out in court and its impact on the US cryptocurrency market.
“Crypto is a global movement, I want there to be a more just and free and global financial system,” Armstrong said. "I think crypto is the best tool to do that, but America is a major economy and we can't let America get left behind."
