ccording to a legal expert, an investigation launched by the SEC into Coinbase's alleged trading of unregistered securities could have a "serious and chilling effect" on crypto exchanges and token projects.

Michael Bacina, an Australian digital assets lawyer with Piper Alderman, said the impact on exchanges and projects might occur whether or not the tokens are ultimately determined to be securities.

"Given that many of the tokens labeled as securities by the SEC in their insider trading prosecution are listed and traded on Coinbase and other exchanges, this investigation could have a serious and chilling effect on both those exchanges and the token projects, regardless of whether the tokens are and are not securities."

A Bloomberg report on Monday states that the SEC investigated the crypto exchange for improperly allowing US investors to trade assets that should have been registered as securities.

The Securities and Exchange Commission's enforcement unit is conducting the investigation, according to three people "familiar with the matter." It is not the same as the investigation into an alleged insider trading scheme.

As a result of the investigation, Coinbase "may face very substantial fines" or be required to register as an exchange in the United States, according to Bacina.

However, he states, "given they have correctly identified key compliance incompatibilities between blockchain systems and existing US market regulations, it may be challenging, if not impossible, for their current business model to exist as a licensed and registered exchange."

"The action does not appear to be aligned with encouraging proactive industry engagement; Coinbase has a history of good faith regulatory engagement and has indicated the SEC has reviewed their token listing criteria."

Fit-for-purpose regulations, according to Bacina, necessitate industry consultation, transparency, and consideration of policy considerations.

"The best way to foster the innovation that blockchain and crypto can bring is for regulators and the industry to engage in transparent dialogue and to issue clear guidance," he added.

"As a CFTC Commissioner correctly stated, this is regulation by enforcement,' and it is not an ideal way to provide guidance or clarity to a rapidly growing and developing industry," he added.

Coinbase responds

Meanwhile, Coinbase has maintained that it has not listed any securities. On July 25, Coinbase's chief legal officer, Paul Grewal, reiterated to his Twitter followers that he is "confident" in the platform's "rigorous diligence process" that keeps securities off its platform.

The investigation's announcement on Monday coincided with a drop in Coinbase Global Inc's share price, which fell 21% overnight, according to NASDAQ data.

Cathie Wood's investment firm Ark Investment Management sold more than 1.4 million Coinbase (COIN) shares on Tuesday, amounting to just over $75 million based on the crypto exchange's closing price on Tuesday.


Jul 28, 2022
Crypto News

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