The US Securities Exchange Commission (SEC) is set to replicate the enforcement actions handed to Kraken and Bittrex crypto exchanges. The move is likely following the strong rebuttal issued by SEC against Coinbase’s petition to compel the security watchdog to formulate cryptos issuance and trading rules.
SEC Enforcement Set to Disrupt Coinbase Performance
In a report reviewing Coinbase’s performance, Hamburg-based Berenberg Bank illustrated that enforcement action would adversely affect the US largest crypto exchange. The report estimates that 37% of Coinbase’s $736 million earnings in quarter one are transaction fees. Also, the percentage had earnings from staking service and spreads charged by Coinbase for trading altcoins.
In his role as an equity research analyst at Berenberg, Malik Palmer observed that revenue streams had USD Coin-related interest income. The amount involves proceeds from the revenue-sharing formula with USDC stablecoin issuer Circle. Besides, Coinbase earns from providing custody services that Malik considers threatened by looming SEC action.
SEC Undeterred to Enforce Actions Against Noncompliant Crypto Firms
Malik urged investors to consider the SEC stance that cryptos, except for bitcoin, operate without fulfilling registration requirements. The senior equity analyst admits that platforms facilitating trading of such cryptos are bound to suffer enforcement actions by the Garry Gensler-led agency.
Malik explains that continued use of enforcement actions by the SEC can adversely disrupt the crypto exchanges’ business activities. The researcher downplays Coinbase consideration for exiting the US market. He outlined that Coinbase only earned 14% outside the US, with the majority earned from domestic operations. Consequently, exiting a market where the crypto exchange earned 85% of its revenue is unviable to pursue.
The latest developments inform Berenberg Bank’s analysts to categorize Coinbase as a hold rating at $55. At press time, Coinbase stock exchanges hands at $61.04, 5.46% up in a day.
Meanwhile, SEC fired back at Coinbase in its Monday submission before the federal court. The agency’s attorney urges the court to dismiss the motion by the San Francisco-based exchange seeking SEC stance on crypto rulemaking.
SEC Versus Coinbase Legal Team Gathers Steam
The commission’s lawyers dismissed grounds that the court should grant Coinbase an extraordinary relief owing to its preference for quicker and crypto-specific regulatory action. The SEC reiterated that the Court should deny the Coinbase petition.
Paul Grewal, the lead Coinbase legal officer, tweeted in response to SEC’s submission to the court as indicative of an attempt to formally explain its perspective on creating crypto-specific rules.
The SEC’s submission reinforces the longstanding concern raised by Coinbase on the absence of regulatory clarity. Grewal added that the SEC’s considerations of its scope in crypto would continue changing with no resolution. As such, Grewal confirmed that Coinbase would formally reply next week.
A review of the SEC argument by James Murphy reveals that SEC is within its rights to wait and decide when and whether to grant the sought request. The Virginia-based specialist in security laws indicated that SEC appears to sustain charging crypto companies.
Murphy dismisses the assertion that Coinbase’s petition may force SEC into formulating new rules. Instead, Murphy acknowledged that courts had previously dismissed petitioners seeking relief when the government agencies delayed action. He added that the slow roll portrayed by the SEC in the Coinbase petition is acceptable for government work. Murphy admits that the SEC can overcome court action despite the apparent delay tactic.
Austin Campbell, who doubles as Columbia Business School professor and managing partner within Zero Knowledge Consulting, tore into the SEC’s response. He indicated that those seeking legal clarity should pursue markets outside the US.
Campbell warns that the move could disadvantage SEC in court. Suing crypto firms could prove difficult if a judge holds the SEC as refusing to formulate rules. The judge may hold SEC culpable if clear rules are lacking. Enforcing actions by the SEC while dismissing calls to make new rules may become the downfall in its multiple cases.
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