On Monday, Crypto exchange Coinbase moved to court in an effort to put pressure on the Securities and Exchange Commission (SEC) to clarify several crypto regulations. The America-based exchange submitted a letter to the agency last July, asking the regulator to establish clear policies for crypto securities. Moreover, the letter included 50 questions that Coinbase claimed would provide the needed clarity in regard to which crypto assets should be treated as securities.
The law requires the SEC to respond to Coinbase’s letter within a ‘reasonable’ timeframe. But the exchange believes that the reasonable timeframe has already passed, considering that it’s been over nine months without any response from the agency.
In the court documents submitted by Coinbase, the firm argues that it is essential for the SEC to respond to the questions in the letter as the agency’s answers would bring regulatory certainty to the United States crypto industry. Coinbase also claims that the lack of clear crypto policies has stalled the development of US crypto companies as investors have backed away.
Meanwhile, the SEC chair Gary Gensler recently said the Commission doesn’t believe there is a need to clarify regulations, arguing that the existing crypto policies could not be clearer. Gensler made these claims during a congressional hearing in March. The chair’s statements could be the reason that pushed Coinbase to pursue regulatory clarity through court.
Paul Grewal, the Coinbase Chief Legal, stated in a blog yesterday that the exchange is not requesting the court to tell the regulator how it should respond but instead asking the federal court to give orders to the SEC to reply to the letter as per the law.
The letter in question was delivered to the SEC the same day the agency accused Coinbase of supporting the trading of nine unregistered securities mentioned in the regulator’s insider trading lawsuit against Ishan Wahi, the Coinbase ex-product manager.
US Regulators’ Enforcement Actions Against Crypto Firms This Year
The latest Coinbase legal action against the SEC comes at a time when US regulators have escalated their scrutiny of crypto companies. In February, the SEC charged US-based crypto exchange Kraken for violating securities laws. The exchange agreed to pay a penalty fee of around $30 million to settle the charges and stopped offering its staking service to American clients. It is worth highlighting that until today, Kraken has never publicly denied or admitted to the SEC’s allegations.
In the same month, the SEC directed BUSD issuer Paxos to quit issuing more tokens, arguing that the company had been violating securities policies. The agency’s regulatory attack on Paxos has seen BUSD’s market cap decline from $18 billion to about $6.32 billion, according to data from CoinGecko.
In March, Coinbase disclosed that the SEC had delivered a Wells Notice to the firm, signaling an impending enforcement action. The regulator claimed that the exchange’s staking products are unlicensed securities.
How Has Coinbase Performed Since 2021?
Coinbase posted $2.5 billion in losses last year. The company had made a profit of $3.7 billion in the previous year. The losses in 2022 are associated with the prolonged crypto winter, which has forced the exchange to explore other avenues in an effort to diversify its revenue. Recently, Coinbase announced it had expanded its services to Brazil.
JPMorgan analysts say they are bullish about the Coinbase services, especially staking. According to these analysts, the staking service could add over $5.5 billion to the exchange’s revenue in the coming months. However, other financial analysts claim the recent regulatory crackdown could put Coinbase’s staking business at risk.
The exchange is set to announce its first-quarter earnings on May 4. Many analysts are waiting to know whether the crypto rally that began at the start of the year had any positive effect on Coinbase revenue. In addition, being a publicly-traded company, investors will keep a closer eye on the price of Coinbase stock (COIN) after the earnings report is released.
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