Coinbase, the largest cryptocurrency exchange in the United States said it received a warning from the Securities and Exchange Commission (SEC), which challenges the company “potential violations of securities laws“. This triggered sales on the stock which in the pre-market is currently down 13% to $67.
In detail, the SEC informed the company, through a Wells notice, that the potential irregularities would concern some aspects of Coinbase’s operations including a segment of its listed digital assets, as well as the Coinbase Earn and Coinbase Wallet staking service.
We note that one Wells notice warns the company concerned that the supervisory authorities conducted an investigation into them, in fact, normally it is notified at the end of an investigationand following this notice the investigated companies have time to refute the allegations of the authorities.
From this point of view, often, but not always, these intentions to sue then lead to enforcement actions against the affected company: lawsuits or settlements and fines.
The attention of regulators towards cryptocurrency exchanges has in fact increased a lot after the events of last year, with the collapse of several large brokers such as FTX. In this sense, even the president of the SEC, Gary Gensler has repeatedly stated that “many of the tokens and products offered by cryptocurrency brokers are securities and that trading platforms need to register with his agency”.
For its part, Coinbase claimed to be “prepared and confident in the legality of our goods and services“, con Paul Grewal, chief legal officer di Coinbase, who described the notice as “superficial,” adding that “should it be needed we welcome legal process to provide the clarity we advocated and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.”
Despite the investigations, the exchange has reassured its customers that its products and services “they will continue to function normally as always“.
We recall that on March 20, Coinbase had filed a petition with the SEC, in an attempt to explain to the authority that cryptocurrency staking should not be universally considered like stocks. In this regard, Paul Grewal reiterated that “the company’s staking product is very different from what Kraken offers, which was the focus of the recent SEC settlement“, “give us rules and we will follow them” . According to Coinbase, the tokens listed on its exchange are not securities and what “None of the assets on the platform are currently considered a security by the regulator.”
The SEC has not yet provided any feedback on this, nor has it asked any questions about Coinbase’s assets.
We’ll see how it goes but a tough fight promises to be given that the CEO di Coinbase Brian Armstrong who stated that “the company is willing to fight the SEC in court if a resolution cannot be reached.”
If the SEC decides to pursue a lawsuit, Coinbase will likely jump at that point in an attempt to seize the opportunity to clear up the crypto regulatory confusion once and for all.
The reaction of the analysts
Meanwhile, Coinbase has been downgraded to Perform from Outperform by Oppenheimer. In that vein, Oppenheimer analyst Owen Lau downgraded Coinbase without providing any price targets, citing the Securities and Exchange Commission’s Wells Notice.
On the contrary, theBarclays analyst Benjamin Budish maintains an Equal Weight rating on Coinbase after the company receives notice from the SEC. Analyst isn’t too surprised to see stocks down given the potential increase in regulatory risk, even if “many unknowns remain”. Furthermore, the Barclays analyst believes that the risks are “difficult to quantify at the moment”.