SEC Reportedly Asked Coinbase to Halt All Trading—Except for Bitcoin

Image:  Sergei Elagin (Shutterstock)
Image: Sergei Elagin (Shutterstock)
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Coinbase’s CEO Brian Armstrong reportedly told the Financial Times that the U.S. Securities & Exchange Commission asked him to halt trading in the exchange with all currencies except bitcoin. According to Armstrong, the suggestion came just before the SEC sued Coinbase last month.

The SEC’s lawsuit against Coinbase accuses the company of operating as an unregistered securities exchange with the commission’s lawyers further arguing that Coinbase was trading 13 cryptocurrencies that were identified as securities. Those alleged securities could cause Coinbase to fall under the purview of the SEC, but the exchange refused to register with the commission. Bitcoin is not believed to qualify as a security under the Howey Test, according to Reuters. Armstrong denied the SEC’s guidance and opted to handle it in court.

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“We really didn’t have a choice at that point, delisting every asset other than bitcoin, which by the way is not what the law says, would have essentially meant the end of the crypto industry in the US,” Armstrong told Financial Times. “It kind of made it an easy choice...let’s go to court and find out what the court says.”

However, when Gizmodo asked Coinbase for clarification, a spokesperson for the exchange said Financial Times’ article misrepresented the circumstances surrounding the lawsuit.

“Prior to litigation, the SEC did not at any point request that Coinbase delist any specific assets, which the SEC acknowledges in the same article. The interview as published earlier today by the Financial Times omits important context regarding our conversations with the SEC,” the spokesperson told Gizmodo in an email. “Whether deliberately or as a result of an oversight, the author implied that the SEC ordered Coinbase to ‘halt all trading of every crypto asset other than Bitcoin.’ As stated by the SEC itself further in the article, its enforcement division did not make formal requests for ‘companies to delist crypto assets.’ This type of request could only be made following a majority vote from the Commissioners themselves.” 

The SEC’s lawsuit alleges that by failing to register the exchange, Coinbase failed to protect its users with regulatory inspections, required record keeping, and safety against conflicts of interest. The lawsuit also targeted Coinbase’s staking program, which was a bona fide high-yield savings account in which users could earn rewards by “staking” their crypto assets. However, the SEC alleged that this program was also an unregistered security and stated in the lawsuit that Coinbase should be“permanently restrained and enjoined” from the product.

As interest in NFTs, the ‘metaverse’, and tokens, in general, has wained over the last year and regulators have increased the number of cases they’re bringing against big crypto players, the people who insist that bitcoin will be the ultimate winner are getting a boost of confidence—for now.

Update July 31, 2:20 p.m. EST: This article was updated to include a statement from a Coinbase spokesperson.

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