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Monday, October 18, 2021

Conflict between SEC and Crypto exchange platform Coinbase continues to escalate

The Securities and Exchange Commission continues to put pressure on the Coinbase crypto exchange. What does this mean for Bitcoin?

The conflict between the US Securities and Exchange Commission (SEC) and the largest US crypto exchange platform Coinbase continues to escalate. Recall that representatives of the regulator recently said that legal proceedings could be initiated against Coinbase because of its new service called Lend. Now SEC chief Gary Gensler has made another statement: the exchange may now be subject to additional sanctions, as many of the coins on its platform inherently comply with the definition of securities, while Coinbase does not. is not licensed to provide such services. We talk about the situation in more detail.

Recall that Coinbase was in the Commission’s field of vision because of the Lend platform. The latter allows exchange clients to invest their Stablcoins – i.e. cryptocurrencies linked to the US dollar – and profit from them. In this case, the return is 4% per annum, which is a huge amount in the context of deposits in US banks. Many analysts felt that such actions on the part of the SEC could be seen as an attempt to eliminate the future competitor of the banks, which would lose appeal in the context of the launch of such cryptocurrency projects.

Additionally, Commission officials did not provide clear instructions to Coinbase on future actions. Instead, they simply made it clear that the case would end in a trial.

Coinbase is in play

Gensler spoke out before the Senate Banking Committee. In August, he already expressed his concerns about the state of the crypto market, in which many tokens are said to have properties of securities, but are not governed by the relevant laws.

Coinbase management is trying to avoid a direct confrontation with the regulator. Platform CEO Brian Armstrong previously wrote on his Twitter that the Securities and Exchange Commission had not been able to provide clear rules for regulating the industry, so his company did everything simply no proper guidelines to act. According to him, Coinbase is ready to comply with the regulator’s requirements, but they are just not in clear form.

Reporters at Decrypt point out that sometime after Armstrong’s tweet, a short video of what could be considered a title under the law appeared on one of the SEC’s Twitter accounts. However, many crypto enthusiasts saw it as a “trolling” of Coinbase.

The question of what should be considered a security has long haunted the crypto industry. Previously, the Securities and Exchange Commission officially recognized that Bitcoin and Ethereum are not securities, but many other tokens could well fall into this category.

During Gensler’s Senate speech, Senator Pat Toomey said the SEC “has not provided clear rules on which a certain financial product can pass the Howie test.” As a reminder, the Howie test is a mechanism for defining “investment contracts” in financial transactions developed by the United States Supreme Court.

Furthermore, Toomey does not believe that Stablecoins, previously often criticized by Gensler, can be equated with securities because they do not generate any expected financial return for their owner. The SEC chief tried to refute all of the aforementioned remarks: he is convinced that the US Congress has given enough flexibility to the regulator to independently define the concept of securities.

Coinbase’s deepening relationship with the SEC may have negative consequences for the cryptocurrency industry, but it’s unlikely to expect anything huge. Most likely, American investors will be hit again, who cannot communicate with new crypto projects and various exchanges. But there are positive circumstances – nonetheless, the Securities and Exchange Commission did not prevent Coinbase from going into IPOs in April of this year, which means its representatives are not planning to block the oxygen of the larger trading platform for working with digital currencies in the country. Overall, we believe the coin industry has nothing to worry about. First, the Securities and Exchange Commission only affects US investors. Second, its representatives have already taken legal action against Ripple – and its implications for the XRP token were only short-lived. Most likely, the same will happen this time.

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