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SEC's Request to Coinbase Signals Regulatory Push in Cryptocurrency Market

Coinbase, one of the leading cryptocurrency exchanges, received a request from the US Securities and Exchange Commission (SEC) to suspend trading in all cryptocurrencies except bitcoin before the SEC filed a legal action against the company. This move indicates the SEC's intention to extend its regulatory authority over a broader segment of the crypto market.

SEC's Request to Coinbase Signals Regulatory Push in Cryptocurrency Market

According to Brian Armstrong, CEO of Coinbase, the SEC made this recommendation due to the exchange's failure to register as a broker. The SEC's case categorized 13 cryptocurrencies on Coinbase's platform as securities, implying that the exchange falls under the regulator's jurisdiction.

What is particularly noteworthy is the SEC's earlier request for Coinbase to delist more than 200 tokens, except for bitcoin. This move implies that under the leadership of Chair Gary Gensler, the SEC seeks to expand its regulatory control over the cryptocurrency industry.

Armstrong revealed that the SEC asserted that all assets other than bitcoin are securities, but they declined to provide an explanation for this classification. Complying with the SEC's request would have set a precedent, potentially leaving the majority of American crypto businesses operating outside the law unless they registered with the commission.

Faced with the implications of delisting all assets except bitcoin, Coinbase opted to challenge the request in court to determine the legality of the SEC's position.

The regulation of the crypto industry has remained uncertain, with the SEC and the Commodity Futures Trading Commission (CFTC) vying for control. Notably, the CFTC sued Binance, the largest crypto exchange, three months before the SEC's legal action against the company.

While Gensler has previously expressed his belief that most cryptocurrencies (excluding bitcoin) are securities, the SEC's request to Coinbase indicates the regulator's adoption of this interpretation in its attempts to regulate the industry.

Interestingly, the SEC's case against Coinbase did not include ether, the second-largest cryptocurrency, and ether was also absent from the list of "crypto asset securities" specified in the SEC's lawsuit against Binance. This raises questions about the categorization of tokens and their regulatory treatment.

If the SEC gains oversight of the crypto industry, it could impose more stringent compliance standards. Crypto exchanges, which often offer custody services and lend to customers, may face restrictions not encountered by SEC-regulated companies.

Several American companies have built their business models based on the assumption that certain crypto tokens are not securities. Therefore, a shift in the SEC's stance could force many of them to halt operations immediately.

The impact of a settlement involving Coinbase delisting tokens other than bitcoin on the rest of the industry remains uncertain, and congressional intervention may be required to facilitate public offerings and retail trading of tokens without regulatory obstacles.

As of now, the SEC has not commented on the potential implications of such a settlement. The debate continues among US authorities to determine the scope of crypto tokens falling under the SEC's purview.



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