On July 26, Bloomberg reported that Coinbase (COIN, $67.07, $14.891 billion market cap), the largest cryptocurrency trading platform in the United States, is facing an investigation by the Securities and Exchange Commission (SEC), according to three people familiar with the matter.
The cryptocurrency market plunged on the news. Bitcoin fell back below $21,000 from a 24-hour high of $22,245, and is still hovering around $21,000 at the time of writing. Ethereum fell more than 7% in 24 hours.
The SEC is focusing on whether Coinbase improperly let Americans trade digital assets that should have been registered as securities, the report said. That said, some of the digital tokens being traded on Coinbase's platform may be considered securities by the SEC.
"We are confident in the SEC's rigorous investigative process, that the SEC will exclude securities from our platform, and we look forward to engaging with the SEC on this matter." Paul Grewal, Coinbase's chief legal officer, said on Twitter. The SEC declined to comment on the matter.
Calls are growing for US regulators to do more to regulate cryptocurrencies as digital currencies have plummeted from record highs, wiping hundreds of billions of dollars off the crypto market's market value, reports say. SEC Chairman Gary Gensler has taken a look at cryptocurrency trading platforms and believes they should do more to protect retail investors.
The debate over whether cryptocurrencies should be registered as securities has been at the heart of a "tit-for-tat" between cryptocurrency platforms and US regulators for some time. SEC Chairman Gensler has long argued that many cryptocurrencies fall under the purview of regulators and that companies offering them should register with the SEC. However, the SEC is not currently specifying which crypto tokens are securities.
The National Business Daily reporter learned that Coinbase, as the largest cryptocurrency trading platform in the US, allows people to trade more than 150 tokens on its platform. If these token products are considered securities, the company may need to register with the SEC as a stock exchange.
Coinbase has repeatedly clashed with the SEC over how it regulates the industry. Coinbase, while adding its token offerings, has called on the SEC to propose clearer regulatory rules.
Bloomberg reported that SEC regulatory scrutiny of Coinbase has increased since it expanded the number of digital tokens it offers.
The move comes after tensions escalated on July 21 when the SEC charged a former Coinbase employee with violating insider trading rules. While the SEC didn't accuse Coinbase of wrongdoing at the time, it said it had determined that nine of the dozens of digital tokens traded were securities.
The two probes address the same issue: the SEC considers some cryptocurrencies offered by Coinbase to be securities, which Coinbase denies.
In response, Coinbase published a post titled "Coinbase Does not List Securities. End of Story." The article noted that both the Justice Department and the SEC reviewed the company's assets, but the DOJ did not file securities fraud charges. It added that Coinbase analyzes whether an asset can be considered a security before listing a token and "takes into account the regulatory compliance and information security of the asset."
Faryar Shirzad, chief policy officer at Coinbase, has also previously said that existing U.S. securities laws may not apply to cryptocurrencies.