Coinbase survey spells trouble for crypto

Debate

17:56

The authorities are moving into the industry

of Greg Barker

Is the age of crypto over? Credit: Getty

This week, it was revealed that crypto exchange Coinbase is facing an investigation by the US Securities and Exchange Commission (SEC) for allowing its users to speculate in unregistered securities. Reports claimed that regulatory officials began taking a “closer look” at Coinbase as it enabled trading of an additional 100 tokens on the platform. How this was the first red flag to provoke a serious investigation remains a mystery to outside observers.

If the SEC concludes that every token listed on Coinbase is, in fact, an unregistered security, every crypto entity will cower in fear. By facilitating the trading of crypto tokens, they will now illegally engage in what computer science professor Nicholas Weaver called “securities fraud as a business”.

Cryptobears agreed. “All insider trading, pump & dump schemes and Ponzis will become illegal overnight”, says crypto critic Dare Obasanjo tweeted. “Coinbase marketed its products as securities to investors but never registered [them]’, added RebellionPac Director Brianna Wu. – We have laws for that. It is a classic fraud crime.”

Coinbase has already done everything against what you would expect from a pro-crypto entity. Looking back, it has committed every one of crypto’s deadly sins. First, Coinbase insiders regularly question their crypto brethren for insider trading, which is rampant in crypto circles. In an even more treacherous move, the company’s executives have been cozying up to the establishment and taking meetings with high-ranking government officials from the US Congress and the Federal Reserve, such as Congresswoman Nancy Pelosi and Fed Chair Jerome Powell. This week, the leaders revisited DC – and tweeted if it.

But there’s only so much Coinbase can do at this stage. The company has been marked out for a while, especially after The intercept published a damning report last month that permanently changed crypto’s perceptions against one of its biggest players. According to ‘contract documents’ obtained by Cut off reporters, Coinbase, the world’s largest crypto exchange, had sold intelligence tools to the US government. Using Coinbase Tracer, the cryptocurrency company’s intelligence-gathering software, Homeland Security’s investigative division (ICE) now had a better chance of linking cryptocurrency addresses to “real-world entities.” Coinbase, a prominent crypto entity, had now helped erode the privacy of its own ecosystem.

Handing over blockchain data to the Feds was yet another sin that Coinbase committed, something it did to get in the government’s good books. Presumably, they believed they were immune to superior levels of regulatory scrutiny.

Is this SEC investigation the catalyst that will bring down what is essentially an unregulated Ponzi ecosystem? Judging by Coinbase’s stock, which has fallen over 20% on the news, investors think so. That might explain why even crypto mega-bull Cathie Wood dumped about a million and a half Coinbase shares close to the news.

Indeed, it is plausible that an unhealthy amount of sanctions and fines will be dumped on Coinbase, with agencies such as FINRA (Financial Industry Regulatory Authority) gaining the power to monitor crypto. This would be a disastrous outcome for the crypto community because if the power structures consider cryptocurrencies as unregistered securities, not only Coinbase but the wider crypto industry will succumb. Because if something is regulated that only has value because it operates in a legal gray area, that eliminates any reason for that thing to exist.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and on Twitter at @concodanomics.