Crypto will be ‘over’ in the US if Coinbase loses its battle with the SEC. Here’s why

The SEC’s Wells notice was about an unspecified portion of the exchange’s publicly traded digital assets, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet, Paul Grewal, Coinbase’s general counsel, wrote in a blog post.

Coinbase will continue to offer its products and services as usual, Grewal said.

While it’s not the first time the SEC has issued a Wells notice, or brought charges against a crypto company, the move is particularly significant, as Coinbase is the largest crypto exchange in the US and arguably the most regulated, industry participants said.

Still, bitcoin

BTCUSD

prices seem to be holding up well. The crypto traded above $28,000 on Thursday after falling on Wednesday, when the Federal Reserve raised interest rates by a quarter of a percentage point, as widely expected, while Fed Chairman Jerome Powell said it was “the most likely case” that the central bank would refrain from cutting the key interest rate this year.

Again, find me on Twitter at @FrancesYue_ to share some thoughts about crypto, this newsletter, or your personal stories with digital assets.

Coinbase Receives Wells Notice

SEC staff told Coinbase that they have identified potential securities law violations, but did not provide much detail, according to Grewal.

A representative at the SEC declined to comment.

The vast majority of cryptocurrencies in circulation are securities that should be monitored by the SEC, the agency’s chairman Gary Gensler previously said.

While the specifics surrounding the SEC’s notice remain unclear, the agency’s move could hurt institutional interest in the already moribund crypto industry, according to Kavita Gupta, founder and general partner of Delta Blockchain Fund.

Still, if the SEC ends up taking enforcement action against Coinbase and the exchange opts for litigation, it could push for more clarity in crypto regulation, said Alex Thorn, head of research at Galaxy Digital. “The SEC needs to make strong cases for them in court,” Thorn said. Digital asset companies have long complained that the SEC did not provide enough clarity on crypto regulation and demanded new sets of rules for the fledgling industry, while regulators said digital assets are subject to existing laws.

However, lawsuits can take years to conclude, and the ruling does not always guarantee regulatory clarity, although the judge will usually rule in favor of one party. “A decision can be made that is so narrow that it doesn’t actually provide clarity,” Thorn said.

If Coinbase loses its battle with the SEC, “it means the crypto industry is over in the US,” Delta’s Gupta said.

US regulators have redoubled efforts to increase oversight of the crypto industry, after several major companies collapsed last year, resulting in billions in investor losses.

In February, the SEC accused Kraken of failing to register its betting program. The exchange ended the program in the United States and paid $30 million in fines to settle the allegations, without admitting or denying the allegations.

Meanwhile, the New York Department of Financial Services ordered stablecoin issuer Paxos to stop minting BUSD, a stablecoin issued by Paxos and branded by the world’s largest crypto exchange Binance. Paxos also received a Wells notice from the SEC, which is considering recommending an action alleging Paxos’ failure to register BUSD as a security.

SEC Charges Justin Sun

The SEC on Wednesday charged Justin Sun, founder of blockchain Tron, alleging that he sold unregistered crypto-securities and fraudulently manipulated the secondary market for Tronix, the blockchain’s original token.

The agency also charged eight celebrities, including actress Lindsay Lohan, social media personality Jake Paul, porn star Kendra Lust, and musicians Lil Yachty, Austin Mahone, Soulja Boy, Ne-Yo, and Akon, for touting Tronix and another token BitTorrent, without disclosing that they were compensated for it and the amount of their compensation, according to a statement Wednesday.

With the exception of Soulja Boy and Mahone, the other six celebrities settled with the SEC, agreeing to pay a total of $400,000 in disgorgement, interest and penalties, without admitting or denying the regulator’s findings.

MarketWatch’s Chris Matthews wrote more about it here.

Make Kwon’s arrest

A man believed to be Do Kwon, founder of Terraform Labs, which was linked to a crypto implosion of more than $40 billion last year, was arrested in Montenegro, according to the country’s Interior Minister Filip Adzec.

Kwon was arrested at Podgorica airport with forged documents and is wanted by authorities in South Korea, the United States and Singapore, Adzec tweeted on Thursday. “We are awaiting official confirmation of identity,” he wrote.

The alleged arrest came just over a month after the SEC charged Terraform and Kwon with orchestrating a multibillion-dollar securities fraud. Last year, blockchain Terra’s stablecoin TerraUSD and sister crypto Luna collapsed, wiping out over $40 billion in market capitalization and starting a chain reaction that tore through the crypto industry.

MarketWatch’s Anushree Dave wrote more here.

Crypto in a flash

Bitcoin rose over 11% in the past week and was trading at around $28,670 on Thursday, according to CoinDesk data. Ether gained 5% in the same period to around $1,843.

Crypto companies, funds

Shares in Coinbase Global Inc.

COIN

was down 12% for the week to around $65.78. MicroStrategy Inc.

MSTR

fell 4% so far this week, to $256.70.

Crypto mining company Riot Blockchain Inc.

RIOT

rose 14.2% to $9.25 as of Thursday. Shares of rival Marathon Digital Holdings Inc.

MARA

rose 0.8% to $8.22 in the past week. Ebang International Holdings Inc.

EBONY

traded 1.3% higher in the past week to around $6.80.

Overstock.com Inc. shares

OSTK

rose 1% to $19.60 on the week.

Shares in Block Inc.

SQ

,
formerly known as Square, fell 17% to $61.16 for the week so far. Tesla Inc.

TSLA

shares rose 6.2% to $191.20.

PayPal Holdings Inc.’s

PYPL

The stock fell 1.1% on the week to trade at around $72.20. Nvidia Corp

NVDA

rose 4.8% to $269.60 in the past week.

Advanced Micro Devices Inc.

AMD

shares rose 1.9% to $99.75 for the week.

Among crypto funds, ProShares Bitcoin Strategy

BITO

rose 4.6% on the week to $17.20 on Thursday, while counterpart Short Bitcoin Strategy ETF

BITI

retreated 5.1% to $21.26. Valkyrie Bitcoin Strategy ETF

BTF

rose 4.8% in the past week to $11.00, while the VanEck Bitcoin Strategy ETF

XBTF

advanced 2.6% to $27.52.

Grayscale Bitcoin Trust

GBTC

rose 7.2% over the past five days to $15.83 on Thursday.

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