Coinbase, the largest crypto exchange in the United States, faces a potential SEC investigation

Cryptocurrency has an SEC problem – and it has gotten bigger.

The Biden administration is focusing more on the highly unstable, low-burden and barely regulated cryptocurrency industry. Cryptocurrency is a decentralized digital currency that is protected by blockchain technology. Bitcoin, Ethereum and other cryptocurrencies have become almost as accessible as government-issued currencies in recent years, but the government provides some consumer protection for them.

The Securities and Exchange Commission (SEC) – headed by Gary Gensler, who taught a class on cryptocurrency at MIT – is trying to make the case so that it can control the decision of the cryptocurrency investment scheme. The relative innovation and rapid expansion of the cryptocurrency industry has placed it in a regulatory gray area. The Internal Revenue Service (IRS) classifies crypto as property. The Commodity Futures Trading Commission (CFTC) considers crypto as a commodity. And the SEC said digital assets “can be securities depending on events and circumstances.” A security is a financial asset that can be traded like stocks and bonds and which is governed by various laws designed to prevent fraud and protect investors.

The SEC has decided that an upcoming offer from Coinbase, the largest cryptocurrency exchange in the United States, meets its security definition. And it shows that it will take action and be regulated accordingly – and, through expansion, will regulate the rest of the crypto finance industry more firmly.

Cryptocurrency exchanges allow people to buy and sell crypto. Coinbase is one of the largest in the world and has recently been unveiled. It was planning to launch a program called Land, which would allow investors to take from others a cryptocurrency called USDC, a “stablecoin” whose value is linked to the value of the US dollar (a USDC is always considered equal) and the value of one US dollar. Will be traded for). In return, lenders will receive 4 percent interest on the loan – much higher than what conventional banks currently pay into their savings accounts. This Coinbase nd offer can be very attractive for consumers who would not otherwise be risky to invest in crypto.

According to Coinbase, where the SEC entered. The company announced Wednesday (or late Tuesday, if you count a Twitter thread From CEO Brian Armstrong) the SEC threatened to sue the company if it launched a lawsuit, but the agency would not tell Coinbase why it considered the lawsuit a security issue, except that it was a Supreme Court lawsuit “through a decade-old prism.” ”These cases are unofficially known Howe And Dreams, The prism through which every possible security, including crypto services, is considered. Coinbase said it was seeking formal guidance from the SEC on how they were using it to determine whether it was a security, but the SEC would not provide it.

The SEC has not yet officially commented, although some people think the tweet has qualified as a response.

The people behind Coinbase may be anonymous (or at least claim), but the SEC almost certainly knows what it is doing here: its claim to regulatory control over the world of cryptocurrency banking and finance. And according to unnamed former SEC officials who spoke to Bloomberg, the agency is doing it with an ugliness that is not uncommon.

“The announcement that the SEC is investigating Coinbase’s nandan program is consistent with the ongoing aggression by crypto regulators,” market intelligence firm GlobalData analyst George Monagan told Rekod.

As the New York Times recently explained, cryptocurrency is moving into the banking sector, which typically provides reserved services for traditional banks, whose services are backed by government-issued currencies (for example dollars) and operated under consumer protection laws and regulations that go back decades. . For example, some crypto companies now offer interest-bearing crypto accounts, debit cards, and credit cards, including cryptocurrency rewards.

Sen. Elizabeth Warren called them “shadow banks” because they are not federally insured and may be more susceptible to hacking and fraud than traditional banks. He wrote to Jensler about his concerns, and, in his response on 5 August, the SEC chair agreed that “investors using these platforms are not adequately protected.” He added that there are some activities that the SEC can control and he believes that lawmakers should give priority to legislation to provide crypto trading and nding.

The SEC has already shown interest in cracking crypto. It launched a crypto regulation initiative in 2018, which turned into a separate office within the agency last December. And it recently embezzled ক্র 2 billion from another crypto transaction platform, Bitconnect, to operate the judiciary as a “textbook register scheme.” Another crypto company, BlockFi, which provides loans supported by crypto and a credit card with high interest deposit accounts and a crypto rewards program, has been the subject of investigation by several state-level security regulators.

But Coinbase is bigger and higher-profile than the bigger company. GlobalData Monagan did not expect the result to be significant for Coinbase, as the Lend program was not yet active. But the SEC’s interest in Coinbase is a sign for every crypto finance company that they still have to comply with the rules, and if they don’t, their consequences should be expected.

These rules could increase in the near future as the Biden administration and lawmakers work to address regulatory gaps in cryptocurrencies. Biden’s proposed 2022 budget included crypto reporting requirements, cracking down on the IRS, and crypto regulations even became a temporary sticking point in passing infrastructure bills. Adding to this – or perhaps exacerbating it – concerns about how cryptocurrency can be used to facilitate criminal activity; Ransomware attacks often demand payment in Bitcoin because these payments are difficult to identify.

Crypto regulations are coming. The question now is whether the slow process of making rules and passing laws will be able to keep pace with the rapidly evolving world of cryptocurrency.

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