The United States government is pursuing a legal case against one of the world’s most popular cryptocurrency trading platforms. On June 6, 2023, the Securities and Exchange Commission (SEC) sued Coinbase, the second-largest exchange of its type by volume.
Regulators allege that Coinbase operated its trading platform as an unregistered national-level securities broker and exchange. The SEC reports that over a dozen crypto assets were available to consumers, including Cardano and Solana tokens, which qualify as asset securities.
The SEC also alleges that the staking program available to traders using Coinbase is a way for people to earn financial returns through direct managerial benefits. Regulators view this activity as an investment contract.
Coinbase Says It Is an Opportunity to Clarify Crypto Rules
Although Coinbase is being sued by the SEC, the platform tweeted a response. “Regarding the SEC complaint against us today, we’re proud to represent the industry in court to finally get some clarity around crypto rules,” wrote Brian Armstrong.
Armstrong went on to mention that the SEC had reviewed Coinbase’s business model and allowed them to become a public company in 2021.
Coinbase also alleges that the SEC and Commodity Futures Trading Commission (CFTC) have made conflicting statements regarding definitions of securities and commodities.
“Instead of publishing a clear rule book, the SEC has taken a regulation-by-enforcement approach that is harming America,” wrote Armstrong. “If we need to avail ourselves of the courts to get clarity, so be it.”
The lawsuit on June 6 came just a day after the SEC filed suit against Binance, the world’s largest crypto exchange. That case includes the platform’s billionaire founder, Changpeng Zhao.
The case against Binance is different because the government alleges Zhao allowed high-value American customers to continue trading on its unregulated international exchange despite public claims of preventing this activity.
How Does the SEC’s Activities Affect Investors
Coinbase says it is continuing operations as usual while the government’s litigation proceeds in court. About one in every five Americans has used or traded crypto, including 42% of those between the ages of 18 and 34.
Although the American market is a core demographic for Coinbase, there is a certain level of regulatory risk to consider. Some experts believe that the SEC could be trying to stop crypto altogether in the United States, while others think that only the most prominent providers will remain because crypto platform competitors won’t want to take on the potential risks.
Either outcome creates poor outcomes for American investors. It means they’ll have fewer trading options, less access to emerging opportunities, and additional fees to pay.
That’s why it is essential for investors to pay attention to the responses that occur in open court. With the SEC’s enforcement action against Coinbase, the public can see the interactions that occur.
Even with the litigation risks, crypto traders are not expected to change their minds about what they’re doing. Those who wanted to leave have likely already found a new home, and those that were staying away will stay that way.
Bitcoin is not named in the complaint.