Coinbase recently used the SEC’s legal action against crypto exchange Kraken as leverage to promote the need for clearer regulation in the cryptocurrency industry.
Specifically, the letter dated 22 November argues that only through the use of mandamus will it be possible to push the SEC to finally acknowledge that Coinbase’s application for regulation has long been blocked. See below for all the details.
Summary
Coinbase defies the SEC: the call to action against the Kraken exchange
As anticipated, US-based cryptocurrency exchange Coinbase has renewed its request to force the Securities and Exchange Commission (SEC) to respond to the company’s petition to establish clear regulations on cryptocurrencies.
It did so by using the SEC’s recent action against Kraken as an argument in support of its claims.
In a document filed 22 November with the US Court of Appeals for the Third Circuit, Coinbase’s lawyers responded to a letter from the SEC dated 21 November.
In the latter, the regulator stated its intention to provide a status report on the petition by 15 December.
Coinbase’s petition, filed in July 2022, asks the SEC to propose and adopt rules to govern the regulation of securities offered and traded through native digital methods, with subsequent responses indicating delays in the process.
The letter submitted by Coinbase argues that only a court order will prompt the SEC to act, noting that the agency’s fear of a court ruling has only led to further delays.
The SEC’s recent enforcement action against Kraken, filed 20 November, was cited by Coinbase as evidence of the commission’s lack of regulatory clarity.
Hence, the push for regulation intensifies as the SEC nears a decision on a Bitcoin-related exchange-traded fund (ETF) for pricing on US markets.
Approval of such an ETF could represent a significant step toward mainstream adoption of cryptocurrencies.
Coinbase’s Brian Armstrong supports decision to comply with US laws
Recently, Brian Armstrong, CEO of cryptocurrency exchange Coinbase, defended his company’s decision to comply with U.S. money transmitter licensing laws in response to recent reports of rival Binance‘s legal involvement.
In a 21 November social media post, Armstrong commented on Binance’s guilty plea in response to the criminal charges.
In addition, he expressed his satisfaction with Coinbase’s decision to obtain money transfer licenses, despite the fact that this resulted in a competitive disadvantage.
Armstrong emphasized the need to embrace compliance to ensure the company’s longevity over time, highlighting his team’s hard work in obtaining licenses, training compliance and legal teams, and maintaining conduct in line with the rules.
Although Armstrong acknowledged that this strategy has slowed Coinbase’s growth, citing the difficulty and costs associated with adopting a compliant approach, he emphasized the correctness of this approach because of the belief in the rule of law.
Not only that, he also criticized the lack of regulatory clarity in the United States, which he believes is driving users to unregulated exchanges abroad such as Binance.
Armstrong did, however, predict that the resolution of the legal case against Binance could serve as a catalyst for greater regulatory clarity.
Despite the Securities and Exchange Commission’s allegations against Coinbase, Armstrong stressed that these do not relate to violations of the Bank Secrecy Act or licensing issues for money transmitters.
In fact, he pointed out that the lack of regulatory clarity in the United States has pushed most crypto transactions abroad and said that 95% of them occur outside the United States.
The SEC’s new charges against Kraken: all the details
As we know, the US SEC announced Monday that it has filed new charges against cryptocurrency exchange Kraken, a few months after settling past legal disputes with the company.
Specifically, the SEC alleges that Kraken’s parent companies operated the trading platform as an unregistered exchange, broker, dealer and clearing agency.
Pressingly, the agency alleges that Kraken commingled client funds with corporate funds, including paying corporate bills from an account that contained client funds, creating a “significant risk of loss” for investors, according to the auditor.
The SEC’s complaint indicates that a number of cryptocurrencies, including Cardano (ADA), Algorand (ALGO), Cosmos (ATOM), Filecoin (FIL), Flow (FLOW), Internet Computer (ICP), Decentraland (MANA), Polygon (MATIC), Near (NEAR), OMG Network (OMG) and Solana (SOL), are considered securities.
Gurbir S. Grewal, director of the SEC’s enforcement division, said Kraken chose to raise money from investors rather than comply with securities laws.
In doing so, he argued, he created a business model rife with conflicts of interest that put investors’ funds at risk. In response, Kraken announced its intention to vigorously defend its position, stressing that it does not list securities.
A Kraken spokesman expressed disappointment about the SEC’s regulatory methodology, noting that it harms American consumers, hinders innovation, and undermines U.S. competitiveness globally.
Kraken believes that congressional action is the most appropriate way to address the lack of regulatory clarity in the United States. Recall that the SEC had previously charged Kraken for its staking services, which the exchange agreed to end and settle with a $30 million payment.
