By now, people are used to unusual goings-on in cryptocurrency markets. But little could have prepared Wall Street for the spectacle of Sept. 8, when it awoke to find the head of a $50 billion digital-assets exchange bashing a powerful regulator in a 21-tweet tirade. There was Brian Armstrong, chief executive officer of Coinbase Global Inc., accusing the U.S. Securities and Exchange Commission of “sketchy behavior” and “intimidation tactics” after it effectively blocked his company from rolling out a product that would let users earn 4% by lending their tokens. Finance Twitter spectators were agog— surely the leader of a public company knew better than to infuriate an agency with the ability to make or break his industry?
But in the us-against-them world of crypto finance, even securities cops aren’t immune to public expressions of outrage. Armstrong’s tweets were accompanied by a blog post, in which Coinbase disclosed that the SEC had served it with a Wells notice—meaning it may pursue enforcement action— and opened a formal investigation into its proposed lending product. That program, Coinbase Lend, promised above-market interest rates for clients who allowed the company to use their crypto-denominated funds to make loans.
This isn’t the first time regulators have cracked down on crypto: They all but shut down the initial coin offering boom in 2018. But it’s an unusually public skirmish with the SEC for a large, well-known crypto company—a dust-up that puts the brakes on a product it had hoped would be a hit with investors. It also marked the loudest statement yet from the SEC under Gary Gensler, who took over the agency in April, and has vowed to beef up crypto regulation. “If he wanted to, he could practically focus on crypto regulation his entire tenure,” says Stéphane Ouellette, CEO, and co-founder of FRNT Financial Inc., a crypto-focused capital markets platform.
The SEC, born in the Great Depression, operates in a legal framework that many crypto devotees believe to be outdated. (Coinbase alludes to this in its S-1, a registration form companies file before going public, saying many regulatory regimes were created before the advent of the internet and don’t address crypto.) The agency considers any security to be its business.
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