The SEC's most notable action is against Ripple Labs for its issue of the XRP token. In December 2020, the SEC hit Ripple with a lawsuit that it allegedly raised capital via unregistered security. Two years on, both parties refuse to give an inch. The action by the SEC has led to XRP being suspended from trading on several exchanges, thus slowing growth and hindering the token's value. However, firm believers within the community have held strong throughout the case, believing that Ripple will win for themselves and crypto as a whole. But it isn't just Ripple who have been targeted. In 2021 the SEC took action against Coinbase over their proposed 'Coinbase Lend' feature by giving the company a Wells Notice. A Wells Notice is a letter issued by the SEC which notifies a company or person that an investigation has been concluded against them and that they will bring enforcement action against them. In this case, it meant if Coinbase went ahead with its proposed Lend programme, the SEC would sue them. Coinbase said it had 'been proactively engaging with the SEC about Lend for nearly six months' meaning the Wells Notice was a very unexpected turn for the company.
The Next Phase of SEC Action
The SEC reemerged this March with another round of fire on crypto. Coinbase has been served another Wells Notice. Regarding the notice, they stated, "we asked the SEC for reasonable crypto rules for Americans. We got legal threats instead." on their website's blog page. Coinbase’s response to the notice has been strong. Their CEO Brian Armstrong, Chief Legal Counsel Paul Grewal and Coinbase themselves have all commented on the SEC’s actions. Coinbase reported on their blog they were served another Wells notice regarding the listing of a 'portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet after a cursory investigation.'
Is ETH a security, or is it a commodity? Paul Grewal highlights the confusion within U.S. law at the moment. Source: Twitter
Coinbase alleges that they have been in constant contact with the SEC discussing regulations regarding their products, but they have been faced with a brick wall in return. How can a company expect to create products for their customers and maintain their own, their customers and regulatory safety when the regulatory body does not contribute to the regulatory discussion? Safe and proactive regulation requires joint discussions. According to Coinbase, this has not been the case. This week we also reported on the SEC's charges against Justin Sun, a well-known individual within cryptocurrency, over alleged fraud and securities violation.
The Double-Edged Sword
It is important to note, despite SEC notices and charges, the supposed wrongdoings of companies and individuals are alleged until proven in a court of law. This means the cryptocurrency industry will have matters such as these lingering in the background joining the queue behind Ripple when crypto is healing and moving on from the events of 2022. However, the double-edged sword for the U.S. issuing all these notices stunts the growth and development of cryptocurrency in the country. The U.S. is a large portion of the cryptocurrency market share and a home to companies, projects, miners, and market participants within the industry. Still, consistent events such as these will inevitably drive capital away. Why would a company remain in the US when it could move to a more crypto-friendly jurisdiction? It is widely known that Hong Kong is reopening its door to cryptocurrency in the coming months. Europe has also positioned itself as a crypto-friendly alternative. Even the UK has mentioned it sees a future as a global cryptocurrency hub. The apparent hassle of becoming regulated within the guidelines in the U.S. is almost an impossible task. Coinbase, a public company listed on the Nasdaq, a process requiring SEC approval, still cannot catch a break from the body that authorised its listing. What chance do smaller projects and companies have? The U.S. gained a significant advantage when China banned Bitcoin mining in May 2021 as miners sought a new home to run their operations. Still, with little progress in terms of regulation over the last two years, the U.S. is becoming a less attractive place for crypto to call home. Inevitably, it will cost the country billions of dollars over the years if it continues to punish crypto instead of embracing it, as it will lose out on the taxes it would have brought in. Other countries are showing themselves to be much more welcoming to the industry. Could we see crypto leave the U.S. en mass in the near future?
