- SEC claims that Coinbase has several listed tokens that qualify as securities instead and is calling for increased exchange regulation.
- Sen Elizabeth Warren points to last weeks volatility as a threat to crypto investors.
Coinbase is once again under fire from the United States Securities and Exchange Commission (SEC). According to the SEC, the cryptocurrency exchange has listed tokens that could be securities.
This came to light when SEC chairperson Gary Gensler presented his testimony on Coinbase’s dealings to the Senate Banking Committee. Gensler told the committee that he believes anywhere between dozens to hundreds of tokens listed on Coinbase could, in fact, be securities.
This, mere days after going back and forth with Coinbase over a proposed service called ‘Lend’ that would allow users holding crypto assets to earn interest on their holdings. In his prepared remarks, Gensler pointed out that crypto exchanges and projects needed to “come in and talk” to the SEC.
I’ve suggested that platforms and projects come in and talk to us. Many platforms
have dozens or hundreds of tokens on them. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50, 100, or 1,000 tokens, any given platform has zero securities. Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they qualify for an exemption.
Meanwhile, Senator Elizabeth Warren pointed to last week’s crypto market crash and volatility as reasons for increased regulation of crypto exchanges. She noted that due to the crash, $400 billion in market value had disappeared. Commenting on volatility she further highlighted an event where an investor tried to withdraw their money at a time when the market was volatile, major crypto exchanges faced brief connectivity issues. She also refuted the popular claim that cryptocurrencies are a way to financial inclusion.
While leading cryptocurrencies Bitcoin and Ethereum do not identify as securities, according to previous comments from the SEC, the rest of the other tokens remain in the dark. The SEC is yet to provide an exhaustive and comprehensive list of which digital assets are considered securities. There is currently no guidance from the SEC on how to determine this. In fact, after nearly a decade of trading, the SEC only recently classified XRP as security leading to an ongoing legal battle between the regulator and XRP issuer, Ripple.
Senator Pat Toomey raised this point during the hearing. In response to Gensler’s comments on crypto exchanges, Sen Toomey countered that the SEC had not clearly explained how the Howey Test would be applied. The Howey Test is a test used to determine whether an investment can be categorised as a security or not. Sen Toomey added that stablecoins did not qualify as security since they are not likely to provide a profit, one of the qualifying points according to the Howey Test.