Today the Financial Times published an interview with Coinbase CEO Brian Armstrong in which it is revealed that the SEC asked Coinbase to delist all crypto assets except Bitcoin.Â
Armstrong said that in an official communication with the exchange, the SEC claimed that any crypto asset other than Bitcoin was to be considered a security.
At that point, Coinbase responded by asking for the agency’s reasons for making this claim, and reportedly received in response a denial of that request, as well as an order to remove every asset other than Bitcoin. These events allegedly took place before June, that is, before the SEC sued Coinbase.
Summary
Coinbase vs SEC: the end of the crypto industry
Armstrong added that at that point there were only two options: the actual delisting of every asset other than Bitcoin, or going to court to find out how a court would rule.
Later, a court did indeed rule on the matter, although it was not the court assigned to consider the SEC’s complaint against Coinbase.Â
Instead, it was the US District Court for the Southern District of New York that ruled on the SEC’s complaint against Ripple, which was accused of selling its XRP cryptocurrency as an unregistered security.
That court ruled that exchanges of XRP on the secondary market, that is, on exchanges, cannot be considered sales of investment contracts, so XRP on exchanges are not unregistered securities. However, it also ruled that XRP sold directly by Ripple to finance itself are securities.
According to Armstrong, if indeed exchanges were forced to delist all cryptocurrencies except Bitcoin, it would be “the end of the crypto industry in the US.”
Indeed, it should not be forgotten that the US SEC can only act within the borders of the US.
According to Armstrong, the law supports quite the opposite, and indeed the New York court later found that to be the case. He also added that the requirement to delist all altcoins paradoxically made it easy for them to go to court, precisely because the real alternative was closure.
Of course, what was true for Coinbase was also true for all other exchanges operating in the US.
The SEC versus the crypto industry
The first thing that immediately jumps out is that the SEC cannot decide what should be considered security and what should not, yet it still tried to impose its decision, later proven wrong, on Coinbase.
Indeed, it is only the courts that can ascribe the label of security to financial assets with certainty, and they must also do so one by one.
Which is to say, that in theory the fact that XRP on exchanges should not be considered a securities does not necessarily mean that the same thing applies to other crypto assets, although the criteria by which the decision is made must necessarily be the same.
This is why to date it is believed that the SEC is wrong when it claims that all altcoins are securities. However, it is possible that some are, in part because XRP itself was as a security when it was sold directly by Ripple on the primary market.
The second thing that is surprising is how the SEC believed it could afford to give orders to Coinbase without having the legal certainties that it was on the right side. Fortunately, the company that runs the leading US crypto exchange did not fall for this trap, and decided to go through with it.
Then again, only a court of law could redeem such an issue.
The SEC emerges from this affair with a severely damaged reputation, both because it insisted even though it was wrong, and because it did not understand (or did not want to understand) that it was wrong, and most importantly because it appears to have tried to abuse its power.
At this point, the motion calling for the dismissal of the agency’s current chairman, Gary Gensler, becomes increasingly credible.
