The SEC sues Coinbase
You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great.
— Gurbin S. Grewal, Director of the SEC’s Division of Enforcement
Welcome to the latest issue of the Bitcoin For Families newsletter. This issue covers:
- 💡 The SEC suit against Coinbase and some questions around it
- 🐦 Notable Notes
- 📝 Recommendations
The SEC sues Coinbase
On Tuesday the SEC filed a suit against Coinbase claiming that it is operating as an unregistered securities exchange, broker and clearing agency.
You can find the details of the suit here.
This article will try to explain some of the questions around this complaint against Coinbase. On Wednesday, the SEC filed a separate complaint against Binance and I will cover that one in next week’s newsletter.
What are the main charges?
In a nutshell, the SEC is proposing that the majority of the crypto tokens sold by Coinbase are securities, that these securities are not registered with the SEC and that Coinbase is breaking the law by selling unregistered securities to its customers.
The complaint also accuses Coinbase of performing three different functions for which they have not registered with the SEC: exchange, broker and clearing agency. The complaint identifies 10 particular crypto assets that it deems to be securities and dedicates 43 of the 101 pages of the complain to explain why.
The assets or blockchains are Solana, Cardano, Polygon, Filecoin, Sandbox, Axie Infinity Shards, Chiliz Sports & Entertainment, Flow, Internet Computer Protocol, Near, Voyager, Dash, and Nexo.
If I were the founder, an investor or a holder of any of these assets, I would be very worried. Luckily for me, I only buy Bitcoin 😀
The complaint excludes the two largest crypto assets by market capitalization: Bitcoin and Ethereum.
What is the SEC’s motivation?
The SEC claims to be defending the right of investors to get relevant and appropriate information before investing in any of these securities.
However, SEC Chair Gensler made an eye opening statement on TV while explaining the logic behind the suit:
We don’t need more digital currency, we already have digital currency. It’s called the U.S. dollar, it’s called the Euro, it’s called the Yen. They are all digital right now.
— Gary Gensler, SEC Chair
You can watch the whole interview here.
So, is Mr. Gensler doing the dirty work for the Federal Reserve removing all possible competitors to a U.S. Central Bank Digital Currency?
What’s Coinbase response?
Coinbase is defending its actions, claiming that they have been very proactive in trying to register and comply with all possible US regulations and that the SEC has been refusing to engage them.
They have gone as far as to sue the SEC demanding clarity (source).
Why are Bitcoin maxis celebrating the suit?
Coinbase started as a Bitcoin business and they are using the reputation of Bitcoin and Ethereum to promote their business.
But once you sign up for an account at Coinbase, you’re instead encouraged to trade all the other 20,000 tokens they list. They make money from every transaction people make, regardless of whether they earn or lose money and so they are incentivized to make you trade.
What Coinbase is doing is enabling all these scams to ride on the reputation of Bitcoin and Ethereum and giving them a patina of credibility by actively promoting them in their website.
All these people eventually lose their investments, because all these tokens are like penny stocks, and their loss gives crypto the reputation that it has of a casino and a ponzi scheme. And the reputation is not wrong. Because all these tokens are precisely that, ponzi schemes.
Coinbase presents them as tokens at the same level as Bitcoin, giving them credibility and enabling their ponzi schemes to succeed.
Coinbase is hurting Bitcoin and its wider adoption by giving crypto a bad name for the sake of their profits.
And that is why people who care about Bitcoin and the importance of sound money hate Coinbase and are thrilled to see it go down in flames.
How does it impact you?
If you have money in Coinbase or Binance, you should take it out immediately.
Aside from that, if you’re only saving in Bitcoin, as you should, then you’re not impacted directly. However, the reputation of crypto keeps getting tarnished and that impacts indirectly Bitcoin.
On the flip side, some people are selling Bitcoin right now based on the news so you have an opportunity to pick up some cheap sats.
Notable notes
Recommendations
btconboard
btconboard is a believer in Bitcoin who also has a background in business finance. This makes his takes on Bitcoin rather interesting, given his experience managing finances for enterprises.
You can follow him here.
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See you again next week! — Alejandro
This newsletter is for educational purposes. It does not represent financial advice.