Why the SEC cracking down on Coinbase could level the crypto playing field

The hands-off regulatory position the U.S. Securities and Exchange Commission (SEC) has long taken when it comes to managing cryptocurrencies appears to be coming to an abrupt end.

On Tuesday, Coinbase co-founder and CEO Brian Armstrong went public with the battle he says the SEC has now picked with his company’s proposed lending product. In a long thread on Twitter, Armstrong chronicled his attempts to work with the SEC to explain how the company’s customers would be able to earn interest on their crypto assets. After months of open dialogue, Armstrong claims the SEC shut talks down and threatened to sue Coinbase if they launched the service.

At the heart of Armstrong’s issue is that other crypto platforms have already been offering interest on crypto assets, similar to the way banks pay interest on cash deposits. In his thread attacking the SEC for what he called “sketchy” and “intimidation tactics behind closed doors,” Armstrong also bemoaned that “plenty of other crypto companies continue to offer a lend feature, but Coinbase is somehow not allowed to.”

But the question around what exactly the SEC sees as above and below board in the crypto space has been boiling for years. The agency has punted on opportunities to more clearly define what might be a security in crypto — only going as far as saying that bitcoin and ether, the two largest cryptocurrencies by market cap, are most likely not securities. In regards to stablecoins, the cryptocurrencies that maintain a peg to the dollar or other base currencies, the SEC had not previously made them a priority. The Federal Reserve, however, had been sounding the alarm over the impact a run on stablecoins could have for the traditional financial sector.

Wall Street veteran Caitlin Long, now also the founder and CEO of Avanti Bank, one of the first crypto platforms to win a banking charter, told Yahoo Finance that even though the SEC hasn’t taken issue with companies offering interest on crypto before doesn’t mean they wouldn’t want to make an example out of Coinbase.

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  1. September 13, 2021

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