Brain Armstrong, the CEO of Coinbase crypto exchange, has revealed that the Securities and Exchange Commission (SEC) asked the company to halt trading of all cryptocurrencies except Bitcoin before it was sued by the regulator for failing to register as a broker.
Coinbase Asked To Remove All Cryptocurrencies Except Bitcoin From Exchange
In an interview with the Financial Times, the Coinbase chief said the move was part of the securities watchdog’s intent to assert regulatory authority over the crypto market.
In the lawsuit filed in June, the SEC identified 12 cryptocurrencies listed on the exchange as securities, claiming that the Nasdaq-listed firm violated federal securities laws by offering them to customers without registering them first with the agency.
According to Armstrong, prior to filing the lawsuit, the regulator requested Coinbase to delist every one of the more than 200 cryptocurrencies listed on its platform except for Bitcoin (BTC).
When the company asked the SEC to clarify how it came to the conclusion that all crypto assets other than Bitcoin are security, enforcement officials declined to comment and simply ordered them to delist the tokens or face regulatory action.
Agreeing To The Terms Would Mean The End Of The Crypto Industry In The United States
The Coinbase CEO said if the company had agreed to the SEC’s terms, it would have meant “the end of the crypto industry in the United States. The event would have set a precedent that would leave all crypto service providers in the country outside the law unless they registered with the SEC.
The SEC then went on to sue the crypto exchange and its main rival, Binance, accusing both companies of running illegal securities exchanges. This indicated that after years of allowing crypto platforms to operate in the U.S. under a regulatory gray zone, the financial watchdog was finally reining in on the crypto sector.
The Commodities and Futures Trading Commission (CFTC) also wants a piece of the cake, arguing that the industry should be under its watch. In March, the CFTC sued Binance, accusing the company and its CEO Changpeng “CZ” Zhao of routinely breaking U.S derivatives rules by operating without registering with the agency for years.
The regulator alleged that Binance was an illegal exchange and a sham compliance program. The lawsuit was filed three months before the SEC’s case against the world’s largest cryptocurrency exchange.
SEC Chairman Deems All Crypto Except Bitcoin As Securities
Gary Gensler, Chairman of the SEC, had previously stated that most cryptocurrencies with the exception of Bitcoin are securities. Many assert it was this comment that the agency has interpreted as its motto to bring regulatory action against the industry.
Notably, Ether (ETH), the most traded cryptocurrency after BTC, was absent from the list of 12 tokens mentioned in the lawsuit against Coinbase.
Likewise, the asset powering the Ethereum network, which is considered vital to many crypto projects, was also not present in the list of tokens asked to be removed from Binance.
Crypto Companies Demand Bespoke Rules And Regulations For The Industry
The assets that currently fall under the SEC’s limit are stocks, bonds, and other traditional financial instruments. But in the case of crypto, a debate among U.S. authorities has been going on for years to determine whether the tokens should be bought under its purview.
On the other hand, crypto companies argue that cryptocurrencies cannot be classified as traditional securities or commodities as they are a new kind of digital asset that requires bespoke rules and regulations.
The SEC disagrees with this notion and has stated several times in the past that most crypto assets are considered securities and are liable to face federal regulations applicable to stocks and bonds.
If the securities watchdog is given the power to regulate crypto, many digital asset service providers will have to shut shop as companies registered with the agency are not allowed to provide services like borrowing and lending, and custody of assets all at once, which are offered by most crypto exchanges.
The lawsuits against Coinbase and Binance, two of the largest cryptocurrency exchanges, will force the U.S. Congress to act and bring in stringent regulations for the industry.
Peter Fox, a partner at law firm Scoolidge, Peters, Russotti & Fox, said it is difficult to see how there could possibly be “public offerings” or “retail trading” of crypto tokens without any sort of intervention from the government.
Crypto firms and investors can only hope for there to be regulations that are lenient and encourage the growth and development of the industry in the United States.
At the time of writing, Bitcoin (BTC) is trading at $28,950 – dropping 1.4% since yesterday. Ether (ETH) is trading at $1,833 – down 1.8% in the last 24 hours.