Gensler And Coinbase Lock Horns Over Listing Digital Tokens As Securities But Without Registration With SEC

Key Upshots:

• Gary Gensler comments that many assets that are identified under Coinbase, may actually be securities,
• The tussle between SEC and Coinbase takes an ugly turn with his statement which is about crypto regulation,

SEC and Coinbase lock horns once again in the ongoing tense situation when the SEC chairman declared the violation of the law on part of the biggest crypto exchange in the US.

That was during a public hearing convention called by the Senate Banking Committee that Gensler recorded his observation that Coinbase lacks proper licensing to function like a stock exchange and went on to add, “even though they have dozens of tokens that might be securities.”

 

Such remarks embody considerable significance as such was not prompted by any categorical query related to securities but such was made while Gary answered to question framed by Sen. Elizabeth Warren (D-Ma) about the harm caused to customers if mega exchanges like Coinbase collapse due to higher trading volume.    

Such comments were like his previous comments which centred around the crypto market. Just last month in August, he stated, “many tokens [currently being traded] may be unregistered securities, without required disclosures or market oversight.”

His statement may be in reaction to Coinbase CEO’s Twitter remarks where Brian Armstrong accused SEC of being unable to roll out a clear and simple regulatory regime for promising players to flourish in the cryptocurrency field.  

Mr Armstrong string of tweets emerged as Coinbase accused SEC of filing a legal suit if the former planned to float a product called Lend, which would compensate consumers with 4% interest against their USDC stablecoin holdings.

Psssssst!! A stable is the crypto form that bears a value that doesn’t dwindle and which is commonly taken as a US dollar.    

In wake of such tweets, SEC reacted by posting a video explaining “security” in light of the law and such a response is said to be an attempt to troll Coinbase.  

From Coinbase, its representative refused to comment on the opinion held by Mr Gensler that Coinbase was listing numerous tokens as securities.

Unambiguously, readers, such has been a bone of contention between SEC and Fintech companies in the US that deal in digital tokens, as to which digital properties qualify to be securities under US federal legal framework and it needs companies to register with SEC. It should be noted that SEC has put Bitcoin and Ehereum aside from securities net but consider other tokens to be securities. A broad process needs to be laid out defining the legal status of a digital token. 

  

Senator Pat Toomey (R-Pa) tried to unravel the chaotic situation of the crypto world during the proceeding and addressed Mr. Gensler, “I’m concerned the SEC hasn’t provided a sufficient definition as to how it would apply the Howey test”, such is a reference made to a case filed in their Supreme Court which defined four criteria that would term investment as security.

Sen. Toomey also pestered Gensler to come clean over stablecoins to be reckoned as a security as a certain condition of Howey test emphasizes upon a “likely expectation of profit” and this is something that Stablecoins lack. While responding to this, Gensler said that Congress had provided a broader spectrum to SEC to define securities.

The sudden impact on Coinbase status, following Gensler’s remarks, is still unclear while the company is said to have made a massive addition to its platform in recent years say above hundred. The exchange had debarred XRP’s Ripple when SEC floated a legal case against it on grounds of security law violation last year and declared its $1.2 billion raise in XRP sales as illegal. The case is still pending and is expected to appear before the judge.   

What Lies Ahead?

If, however, SEC finalizes Coinbase’s offerings (dozens in number) as securities, these would need to be delisted from company records while there would be the threat of series of fines and investigation looming before the company. From a broader perspective to the crypto field, such would be a potential blow as Coinbase is hailed as one among the major crypto firm and has claimed to have acted well within the legal boundary.   

As on Tuesday, the hearing was comprehensive enough to be inclusive of a range of issues, such as cyber-security and Robinhood’s business pattern, but Senators appeared tilted toward crypto discussion.

Senator Cynthia Lummis (R-Wy), echoed Toomey’s sentiments that crypto field operates without any clear-cut laws while in her state of Wyoming, new laws have been brought to book to stimulate crypto companies and such operations. She also questioned the intent of Mr. Gensler, if he favoured any breakthrough in the field.     

When his tongue slipped towards crypto-currency, on a broader note, Mr. Gensler’s tone was harsh while he was emphatic to Warren who tossed cuss words at the industry for putting high fees in place for trading as well as for other transactions. Mr. Gensler pacified Warren saying that more resources were needed to input the Commission to have a strong hand over the industry.

He asserted, “There are 6,000 projects and while some are commodities, many are securities under the law. “Right now there are many individuals in this country who’ve been hurt … There will be more [harm] since this crypto area is trying to stay outside the investor protection perimeter.”

Among the attendees, there was Mark Warner (D-Va), who also wears the reputation of a foreign affairs specialist and who had cited crypto’s worth to sideline anti-money laundering laws and commented, “Some of the things I see from intel side scare the dickens out of me.” 

Warner went on to yield the widespread sentiments his supporters harbour for crypto-currency so much so, that a heated debate ensued in Congress asking for the apt definition of brokers by believing that “for a group that says they’re unorganized, I’ve never seen a group that’s got as many publications as the crypto community already has.”

In the final lap, such incidents indicate that Tuesday’s hearing as well as the unfinished battle between SEC and Coinbase is bound to get ugly as the Congress and the regulator exchange ideas to craft rules to manage the crypto field which grows at a fast pace.

Tags: Coinbase, Coinbase boost, Coinbase versus SEC, Crypto World, Democratic Senator Mark Warner, Demoratic Senator Elizabeth Warren, Gary Armstrong, Republican Senator Cynthia Lummis, Security Exchange Commission, Senate Banking Committee, Stablecoin holding