Coinbase called for the creation of a single dedicated body to control digital assets, arguing that current surveillance is too fragmented and that centuries-old U.S. securities laws are unsuitable for today’s cryptocurrency market.
In a policy document shared with Congress, the largest U.S. cryptocurrency exchange called on lawmakers to separate the oversight of the digital asset market from other financial markets, as it continues to attack Capitol Hill after a recent feud with the Securities and Exchange Commission.
“To avoid fragmented and inconsistent regulatory oversight of this unique and simultaneous innovation, responsibility for the digital asset market should be vested in a single federal regulator,” Coinbase noted, noting that the SEC, the Commodity Futures Trading Commission and some state administrations oversee all parts of the industry.
To support oversight under this new digital asset regulatory system, the company has proposed the creation of an additional self-regulatory body, or SRO, that reflects the traditional financial markets.
The proposals have come as tensions between Coinbase and the SEC have risen in recent months. SEC chairman Gary Jensler said in September that Coinbase was not registered with the regulator “although they have dozens of tokens that could be securities”, a feature that the company disputes.
Chief executive Brian Armstrong also accused the regulator in September of being “sketchy” and opaque, threatening to sue if the company launched its products, which would pay interest on stacked cryptocurrencies without registering with the regulator. Coinbase later canceled the plans.
In its proposal on Thursday, Coinbase argued that securities laws enacted in the 1930s struggled to adapt to current digital markets and that it was risky to stifle innovation and drive offshore crypto entrepreneurs. The document, seen by the Financial Times, was first reported by The Wall Street Journal.
Although Gensler says many crypto products can be defined as securities, he has stopped issuing further guidelines, saying the existing rules are clear enough. In recent months, he has called on crypto platforms to contact the SEC and discuss whether to register with the agency.
Regulatory debates whether digital products are “investment contracts”, and are therefore considered securities under federal law. According to what is known as the Hawaiian Test, the Supreme Court has ruled that an investment agreement exists when “a person invests his money in a common enterprise and expects profit only from the efforts of the promoter or third party”.
“Although the Hawaii test has an important role to play in determining what security is, applying it to digital assets has even managed to make the SEC vague and inconsistent,” Coinbase said in its proposal.
The agency further argued that the decentralized and open-source nature of digital assets meant that the current disclosure requirements in the Securities Act were not appropriate.
“Each holder of a digital asset can examine for themselves the effectiveness and governance structure of the asset,” it said. “Applying the disclosure requirements of public companies will probably confuse the public about what the real information about digital assets is.”
The SEC did not immediately respond to a request for comment.