Continuing its tenuous dance with the Securities and Exchange Commission (SEC), Coinbase, the renowned US-based crypto exchange, is still on shaky ground despite Ripple’s recent legal victory. Particularly vulnerable, it seems, is Coinbase’s “Earn” program. The potential upheaval comes from the staking rewards this program offers, which, as investment firm Berenberg Capital suggests, could tread the nebulous line between smart business and securities fraud.
The perilous potential of the “Earn” program is largely due to the way it’s structured. By offering staking rewards to retail customers, the program bears resemblance to traditional finance’s dividends system. This structure could categorize the “Earn” program as a security, fundamentally shifting the perception and legality of the platform. If the SEC deems tokens offered for staking as securities, any exchange offering such tokens without registration could be classified as an unregistered securities exchange. This is exactly the accusation the SEC leveled against Binance.US.
Recent developments, like the US District Court ruling in favor of Ripple, seem to create an illusion of safety. The judgment argued the XRP token is not a security by itself. However, the caveat that tokens can become securities when used in certain activities can still flip the coin (pun intended!) against Coinbase. This complexity is causing Berenberg to blare warning sirens for Coinbase’s Earn program.
The Coinbase stock has witnessed a rally of around 124% since hitting the $46.43 low in June, which makes the Berenberg’s alert all the more pressing. The firm’s warning may slow down this rally, causing concern for investors and stakeholders alike.
A prime example of these contradictions and confusion is the re-listing of XRP for trading by many US-based exchanges, including Coinbase, Kraken, Gemini, and Crypto.com. They all had delisted the token in early 2021 because of legal uncertainties, but Ripple’s recent win has prompted them to reverse their move.
Even earlier in June, Berenberg declared the COIN stock almost “uninvestable” due to the lawsuit the SEC filed against Coinbase. According to the firm, if the lawsuit ends favoring SEC, it could lead to a total shutdown of Coinbase’s core operations in the US.
As uncertainty clouds cryptocurrency regulations, companies like Coinbase are grappling with potential minefields in their pursuit of innovative financial systems. Whether these warnings will manifest into dangers or dissolve as mere fears, remains a crystal ball prediction.
Source: Cryptonews
