On June 6, Coinbase, the prominent cryptocurrency trading platform in the United States, received a major blow with a complaint filed against it by the U.S. Securities and Exchange Commission (SEC). The SEC alleges that Coinbase has been operating illegally since 2019, functioning as an unregistered national securities exchange, broker, and clearing agency. Additionally, Coinbase is being charged for not registering its crypto asset staking-as-a-service program, according to a statement from the Wall Street regulator. SEC Chairman Gary Gensler criticized Coinbase for commingling and unlawfully offering various functions that should be separate and depriving investors of essential protections.
Coinbase should pivot back to being focused on #Bitcoin pic.twitter.com/RFKzKTKMko
— Pierre Rochard (@BitcoinPierre) June 6, 2023
The conflict between the SEC and Coinbase centers around two key issues: whether cryptocurrencies are considered securities and the status of the staking service. The SEC views both as securities. According to the SEC, a security is defined as an investment of money in a common enterprise with an expectation of profit derived from the efforts of others. The agency references the Howey Test, a 1946 Supreme Court ruling, which determines what qualifies as an “investment contract” subject to U.S. securities laws. In the SEC’s view, any coin other than bitcoin is considered a security. The SEC is also targeting staking, a process in which investors lock up their crypto tokens with a blockchain validator to earn rewards.
— jack (@jack) June 6, 2023
In light of the SEC’s offensive, billionaires Jack Dorsey and Elon Musk expressed their views on Twitter, suggesting that Coinbase should refocus on bitcoin and Dogecoin, their preferred cryptocurrencies. Pierre Rochard, VP of Research at Riot Platforms and a bitcoin evangelist, initiated the discussion by sharing a tweet from Coinbase CEO Brian Armstrong from 2015. Armstrong had stated that Ripple, Stellar, and Altcoins were distractions, emphasizing the need to focus on bitcoin and sidechains. Dorsey and Musk both supported this sentiment, with Dorsey agreeing wholeheartedly and Musk suggesting that Coinbase should also prioritize Dogecoin, of which he is a major influencer.
Bitcoin, with a market value of nearly $507 billion, currently dominates the cryptocurrency market at 44% of the $1.15 trillion market, according to CoinGecko. Dogecoin, valued at $9.6 billion, holds the ninth position by market value. Dorsey even dismissed Ether, the second-largest cryptocurrency by market value at $222.1 billion and the native token of the Ethereum blockchain, when asked about its status as a security. Dorsey’s response indicated that Ether is indeed considered a security by his understanding.
The SEC’s complaint and the suggestions from Musk and Dorsey have raised questions about Coinbase’s offerings. With the SEC considering only bitcoin to be a non-security, Coinbase could face further complications if it continues to offer Ether. As the regulatory and legal environment intensifies, Coinbase will need to carefully navigate its future operations and consider the recommendations put forth by influential figures like Musk and Dorsey.
