Coinbase chief legal officer Paul Grewal recently urged Congress to adopt a draft bill outlining a regulatory framework for cryptocurrency transactions, shortly after his company was sued by the Securities and Exchange Commission (SEC) for failing to register with the agency. Grewal called the SEC’s move “disappointing, but not surprising” and criticized their enforcement-only approach. He believes that the solution lies in transparent legislation applied equally to all, rather than litigation. Regardless of the complaint, Coinbase will continue to operate as usual.
The SEC’s action comes just before a House Agriculture Committee hearing on a GOP-led bill called the Digital Asset Market Structure Discussion Draft. Grewal spoke in support of the bill, calling it a “strong step forward” in providing regulatory clarity and encouraging US industry growth. However, while Grewal testified before Congress, Coinbase released an ad criticizing the SEC for failing to offer guidance or rules for legal operation in the crypto space. This reiterates the company’s stance that the SEC was aware of their business practices prior to their public debut in 2021.
The proposed bill specifies when a digital asset would be regulated as a security or a commodity, helping to determine which regulator has authority over the asset. It also establishes a definition for “decentralized” networks, an important factor in deciding whether an issuer answers to the SEC or the Commodity Futures Trading Commission (CFTC). This hearing comes amidst an SEC enforcement spree that has unsettled the crypto industry.
Earlier, the SEC sued Binance, the world’s largest cryptocurrency exchange, for allegedly violating securities laws, including failure to register as an exchange and engaging in unregistered crypto transactions. Binance has denied these charges and accused the SEC of overreach. In their lawsuit against Coinbase, the SEC similarly claims that the company failed to register as an exchange, clearinghouse, and broker, and that it was offering and selling unregistered securities through its staking service. Some of the assets they named included Solana, Cardano, and Polygon.
Coinbase’s stock on Nasdaq fell by over 21% to $45.98 when news of the lawsuit was announced, but has since regained value, trading at $51.17 as of writing. This case marks the latest in an ongoing struggle between Coinbase and the SEC, beginning with a Wells Notice from the SEC in March. Coinbase CEO Brian Armstrong has been vocal about the agency’s allegedly unfair approach to regulating digital assets. In response, Coinbase asked a federal court in April to force the SEC into issuing clearer regulations, although they received no response to their “petition for rulemaking” sent last summer.
Overall, the SEC maintains that its enforcement actions in the crypto space are justified considering the alleged violations by exchanges. Following the announcement of the Coinbase lawsuit, the SEC’s director of enforcement, Gurbir Grewal (no relation to Paul Grewal) accused Coinbase of strategically avoiding registration and depriving investors of regulatory protections.
Source: Decrypt
