U.S. Regulators Told Coinbase Exchange To Stop Trading In All Cryptos Except Bitcoin

4 August 2023

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A recent report reveals that the U.S. Securities and Exchange Commission (SEC) asked Coinbase to stop trading all cryptocurrencies except for Bitcoin. This surprising directive came from the SEC before it took legal action against Coinbase. Brian Armstrong, Coinbase CEO, told the Financial Times that this left Coinbase with no other option but to fight back in court.

The SEC's directive is quite unusual. Typically, the SEC wouldn't ask companies to delist crypto assets. The SEC claims that its views might differ within its organization and aren't solid unless explicitly expressed. Therefore, it's safe to say that the views represented in the referenced article might have been from some SEC staff members but not the Commission as a whole.

The SEC's legal action against Coinbase started last June, accusing Coinbase of breaking federal securities law. The SEC alleges that Coinbase was acting as a broker, exchange, and clearinghouse for 13 different unregistered securities, excluding Bitcoin. Coinbase argued against these charges saying that the SEC's actions violate due process. Now, the two are stuck in a legal dispute.

Brian Armstrong stated that the SEC said every asset other than Bitcoin is a security. However, the SEC refused to explain their reasoning for this claim. This led to a standoff, forcing Coinbase to head to court. The SEC's stance suggests that it might have viewed Ether, the second-largest cryptocurrency, as a security before taking legal action against Coinbase. Read more here.

U.S. Gov's Landmark Crypto Bill Reaches Next Stage

The Financial Innovation and Technology for the 21st Century Act, or FIT for the 21st Century Act, took a significant leap forward on July 26, as the House Financial Services Committee approved the bill. This groundbreaking proposal presents clear guidelines and stronger consumer protections for the cryptocurrency industry. A bipartisan effort, the bill saw a 35 to 15 vote win, with six Democrats joining Republicans in passing the act.

This bill, if enacted, will mandate registration for digital asset exchanges, brokers, and custodians, and will enhance disclosure requirements. Moreover, it will establish a joint committee on digital assets between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The bill also provides the CFTC jurisdiction over spot digital asset markets and mandates regulators to define clear thresholds for when a digital asset could transition from a security to a commodity.

The act also includes provisions to exempt digital asset issuers from securities laws if they meet certain conditions, such as owning less than 10% of a token's supply, selling less than $75M worth of assets in a year, and ensuring sales to non-accredited investors are less than 10% of the issuer's annual income or net worth. However, to qualify for the exemption, issuers must register with the SEC.

Despite the bill's progress, some Democrats expressed dissatisfaction, including Maxine Waters, who called for more input from Gary Gensler, the chairman of the SEC. Meanwhile, Republicans on the committee reported unsuccessful attempts to gain Gensler's assistance with the bill. The committee also advanced a bill exempting software developers and virtual asset services providers from being treated as digital asset brokers, as per the 2021 Infrastructure Investment and Jobs Act. Read more here.

Learning From The SEC Vs Coinbase Case

The SEC vs Coinbase case also highlights the need for clear classifications and definitions within the cryptocurrency space. The SEC's assertion that all assets other than Bitcoin are securities led to confusion and disagreement.

As we often cover here, monitoring the progress of regulations from other similar countries, such as the US, is usually a good indicator, in some form, of what is to come to other allied nations, such as the UK, Canada, NZ, Japan and Australia.

The case brings to light the need to navigate the regulatory environment proactively. The SEC's differing opinions within its own organization underscore the ongoing uncertainty and struggles when governments attempt to regulate fast moving world cryptocurrencies.

Zucoins and the Splitchain network, being newer entrants, can benefit from a proactive approach to regulatory compliance. Regular consultations with legal experts, staying on top of regulatory developments, is of utmost importance.

It also highlights the general caution surrounding cryptocurrency exchanges. As we've written about before, use cases that improve utilization of a crypto's token, such as solving issues people are having in third-party systems, is far more important long-term than the speculation fuelled and increasingly fragile world of current cryptocurrency exchanges.

The case underscores the need for decentralization and autonomy in cryptocurrency systems. Coinbase's issues with the SEC highlights the vulnerability of centralized exchanges and crypto systems. This is encouraging news for Zucoins, as it has always compared itself to Bitcoin, sharing similar goals to the original Bitcoin protocol, but aiming to improve upon inherent and complex issues.

As the Zucoins project continues to work towards more decentralization, it will ensure that the network remains robust against any single entity's control. The case serves as a reminder that a truly decentralized network is the target that needs to be achieved.

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All the best,
Peter & Rob
MyZucoins

Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.