US SEC Choking Crypto Industry, Claims Coinbase

The United States Securities and Exchange Commission (SEC) continues its regulation-by-enforcement approach to the cryptocurrency industry with the intention of “choking” it, according to crypto exchange Coinbase.

“The SEC is serious about the destruction of digital assets,” Coinbase stated in a May 31 filing with the U.S. Court of Appeals. The filing is part of Coinbase’s ongoing effort to compel the SEC to create fair regulations for the crypto industry. The exchange argues that the agency is unwilling to establish clear guidelines.

“Giving the agency further opportunity to explain itself is both pointless and exquisitely undeserved,” Coinbase added.

Biden’s Veto on Resolution Affecting Crypto

Meanwhile, President Joe Biden vetoed a House Joint Resolution on Friday that sought to repeal the SEC’s Staff Accounting Bulletin 121 (SAB 121). This controversial SEC guidance requires financial institutions holding crypto for customers to keep these assets on their own balance sheets, which critics argue makes it difficult for financial institutions to work with crypto companies.

“Inappropriately constraining the SEC’s ability to set forth appropriate guardrails and address future issues would undermine the SEC’s broader authorities regarding accounting practices,” Biden stated. He emphasized the need for “appropriate guardrails that protect consumers and investors.”

This veto came shortly after banking groups and members of Congress sent letters urging Biden to sign the resolution to overturn SAB 121. They argued that the guidance blocks regulated banking groups from offering custody services.

Ongoing Legal Battle

Coinbase has claimed that the SEC “has no duty” to make compliance with its rules feasible and believes its rules are “workable enough” because it has already taken legal action against several firms for violations. The exchange further pointed out that other SEC Commissioners also believe the agency is hindering the digital assets industry and stifling new technology.

Hester Pierce, a vocal pro-crypto SEC commissioner, recently suggested a cross-border sandbox program for U.S. and U.K. blockchain firms experimenting with tokenized securities. “People have tried to come into the SEC to get relief, but, you know, you sort of come in, and nothing happens. This would […] force the SEC’s hand a little bit,” Pierce said during a panel at Consensus 2024.

SEC’s Stance on Crypto Rules

Coinbase also noted that the SEC has attempted to downplay its heavy-handed approach by asserting that only a “small set of market participants” may experience “compliance difficulties” under existing rules. The SEC initiated a lawsuit against Coinbase in June 2023, alleging that the exchange had never registered as a broker, national securities exchange, or clearing agency, thus evading the disclosure requirements for securities markets.

Despite optimism from the crypto industry and legal experts that Coinbase would secure a dismissal, the attempt was unsuccessful. On January 21, Bloomberg senior litigation analyst Elliott Stein had forecasted a 70% chance of Coinbase achieving a full dismissal in the lawsuit after attending a hearing.

Conclusion

Coinbase’s clash with the SEC highlights the ongoing tension between the cryptocurrency industry and regulators. As the SEC maintains its stringent stance, the crypto industry continues to push for clearer and fairer guidelines to foster growth and innovation.