Is Coinbase in hot water? SEC investigates potential securities law violations.

On March 22nd, cryptocurrency exchange Coinbase announced that it was issued a Wells Notice from the US Security and Exchange Commission (SEC), officially alerting them of possible enforcement action over securities law violations.

Coinbase, the largest crypto exchange in the United States, said that the top financial regulator’s notice did not specify the product that violates the law.

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Instead, it targeted the aspects of Coinbase’s staking program called Earn, non-custodial wallet, listed digital assets, and Prime services.

The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so.

SEC Chair Gary Gensler recently stated that all cryptocurrencies apart from Bitcoin should be considered securities that fall under SEC’s purview.

SEC has placed charges against multiple cryptocurrency companies this year alone. Recently, Kraken settled with the top regulator over “failing to register the offer and sale of their crypto-asset staking-as-a-program.”

When it comes to securities, Coinbase holds a different position from that of the SEC. On March 20th, the company submitted a petition to the SEC emphasizing that not all staking products should necessarily be considered securities.

Coinbase acknowledged the seriousness of the move by the US top regulator. However, it argued that the company complies with all laws and regulations. If needed, Coinbase said it will “welcome the opportunity for and the broader crypto community to get clarity in court.”

This is not the first time Coinbase conflicted with SEC. In 2021, authorities threatened to take action against Coinbase over the exchange’s yet-to-be-launched Lend product. Coinbase dropped the plan to launch the new product.

It is worth noting that over a month ago, the news broke that SEC had issued a similar Wells Notice to stablecoin issuer Paxos over its Binance USD (BUSD), claiming that the token violated investor protection laws.

Gile K. - Crypto Analyst

by Gile K. – Crypto Analyst, BitDegree

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