Latest Blow to Crypto Industry

After filing a recent lawsuit against Binance, the U.S. Securities and Exchange Commission (SEC) has, in an unexpected turn of events, turned its attention to Coinbase. The SEC said in a press statement that it is assessing fees against Coinbase for.“operating as an unregistered securities exchange, broker, and clearing agency.” Furthermore, the regulator has accused Coinbase of “failing to register the offer and sale of its crypto asset staking-as-a-service program.”

Crypto Assets and Securities Laws

The crypto assets supplied on Coinbase’s platforms, including Coinbase Platform, Coinbase Prime, and Coinbase Wallet, are claimed by the SEC to be “crypto asset securities” and as such are governed by securities laws in a 101-page complaint. The SEC asserts that Coinbase has known since 2016 that the Supreme Court’s ruling in the SEV v. W.J. Howey Co. case from 1946 already provides a framework for determining whether a crypto asset qualifies as an investment contract, despite Coinbase and other companies repeatedly seeking regulatory clarification from U.S. authorities.

The Allegations Against Coinbase

The “Howey Test,” which was developed as a result of the litigation stated above and consists of a four-pronged criterion, is used by the SEC to determine whether a transaction complies with the requirements of an investment contract. The SEC claims that Coinbase ignored the Howey Test in order to increase its revenues.

The SEC complains that Coinbase has placed its own interests and compliance with securities rules second to those of investors in order to increase its earnings. It states, “Coinbase has elevated its interest in increasing its profits over investors’ interests, and over compliance with the law and the regulatory framework that governs the securities markets and was created to protect investors and the U.S. capital markets.”

Consequences and Impact

The SEC is requesting prejudgment interest be added to civil money fines and the disgorgement of the exchange’s “ill-gotten gains” as part of the relief it is seeking in response to Coinbase’s alleged violations.

The timing of these accusations is significant since the two biggest cryptocurrency exchanges in the world, Binance and Coinbase, are presently involved in legal disputes with the SEC. Shares of Coinbase (COIN) have already decreased by 21% as a result of the news of the SEC’s lawsuit against the exchange.

Raising Questions for the Crypto Industry

The accusations against Coinbase deal another blow to the cryptocurrency sector and raise concerns about regulatory oversight and compliance in a field that is rapidly changing. Industry actors are under more pressure to negotiate the regulatory environment while assuring investor protection and the stability of the capital markets as the SEC tightens its monitoring.