Coinbase, the largest crypto exchange in the U.S., faces a potential SEC scrutiny

Cryptocurrency has a problem with the SEC – and it’s growing.

The Biden administration has devised a much quicker approach to faster penetration, less understood, and less likely to regulate the cryptocurrency industry. Cryptocurrency is a decentralized digital currencies derived from blockchain technology. Bitcoin, ethereum, and other cryptocurrencies have become almost as accessible as government-issued money in recent years, but the government offers some consumer protections for them.

The Securities and Exchange Commission (SEC) – headed by Gary Gensler, who teaches a cryptocurrency class at MIT – is trying to make the case possible and control any cryptocurrency -selected investment schemes that are under of it. The innovation and rapid growth of the cryptocurrency industry puts it at a controlling gray area. The Internal Revenue Service (IRS) classified crypto as ownership. The Commodity Futures Trading Commission (CFTC) thought Crypto can be a commodity. And the SEC states that digital assets “can be secure, depending on facts and circumstances.” A security is a financial asset that can be traded, such as stocks and bonds, and that is managed by many laws designed to prevent fraud and protect investors.

The SEC appears to have decided that the future offering from Coinbase, the largest cryptocurrency exchange in the United States, meets its definition of a security. And it has been shown to infiltrate and control it accordingly – and, by linking, regulate the rest of the crypto financing industry more vigorously.

Cryptocurrency exchange allows people to buy and sell crypto. Coinbase is one of the largest in the world and just now became public. It plans to launch a program called Lending, which will allow investors to lend some of them a form of crypto called USDC, a “stablecoin” whose value is equal to the value of the U.S. dollar (a USDC is always the same and will be sold for the same amount in U.S. dollars) Instead, lenders receive 4 percent interest on the loan – a much higher rate than traditional banks now offer on their savings accounts. This could have made Coinbase Lend’s offering very attractive to consumers with no risk of crypto investing.

That’s where the SEC stepped in, according to Coinbase. The company announced Wednesday (or later Tuesday, if you count a Twitter thread from CEO Brian Armstrong) that the SEC threatened to sue the company if it launched the Lending, but the agency would not tell Coinbase how they considered it a security, unless it was done through the prism of those who decades old Supreme Court cases. ”These cases, which are not formally known Howey and Dreams, is the prism through which every security potential is considered, including crypto services. Coinbase said they want formal guidance from the SEC on how to use it in cases to determine if the loan is a security, but the SEC will not provide it.

The SEC has not yet officially commented, though some people think this tweet qualifies as a response.

The people behind Coinbase may (or most menus claim to be) vague, but the SEC almost certainly knows what it’s doing here: declaring control over its management in the world of cryptocurrency banking and finance. And it did so in an outrage not typical of the agency, according to anonymous former SEC officials. speaking to Bloomberg.

“The announcement that the SEC is investigating the Coinbase Lending program is consistent with the ongoing aggression by regulators regarding crypto,” George Monaghan, an analyst at market intelligence firm GlobalData, told Recode.

As the It was recently explained by the New York Times, Cryptocurrency is moving into the banking sector, offering services typically provided for traditional banks, whose services are backed by government-issued money (e.g. dollars) and operated under laws and regulations to protect the consumer going back decades. For example, some crypto companies now offer interest -bearing crypto accounts, debit cards, and credit cards with cryptocurrency rewards

Sen. called it. Elizabeth Warren “shadow banks,” points it is not federally insured and can be more vulnerable to hacks and fraud than traditional banks. He wrote to Gensler about his concerns, and, of his response on August 5, the SEC chairman agrees that “investors who use the platforms are not adequately protected.” He also said there are specific activities that can be regulated by the SEC, and he believes lawmakers should prioritize legislation that deals with crypto trading and lending.

The SEC has previously shown an interest in crypto suppression. It was launched a crypto regulation initiative in 2018, which became a solitary office within the agency in December. And it is now newly charged another crypto lending platform, BitConnect, with $ 2 billion in fraud for running what the Department of Justice called a “Ponzi scheme book.” Another crypto company, BlockFi, which offers crypto -backed interest -bearing loans and deposit accounts and a credit card with a crypto rewards program, is subject to investigations from several state -level security regulators.

But Coinbase is bigger and has a much higher profile than the companies. Monaghan at GlobalData did not expect the fall to be significant for Coinbase itself, as the Lend program is not yet active. But the SEC’s interest in Coinbase is a sign every crypto financing company still has rules they need to follow, and they need to expect consequences if they don’t.

Those rules could be added in the near future as the Biden administration and lawmakers work to address the governance differences that have plagued cryptocurrency. The proposed B22 budget in 2022 included crypto reporting requirements, the IRS is destruction, and crypto regulations even become a temporary sticking point to pass the infrastructure fee. Adding to this – or perhaps exacerbating it – there are concerns about how cryptocurrency can be used to facilitate criminal activities; ransomware attacks always ask bitcoin payments due to the difficulty of tracking payments.

Crypto regulations are coming. The question now is whether the slow process of making rules and passing laws can sustain the rapidly evolving world of cryptocurrency.

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