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US Government Uses Coinbase to Sell Confiscated Bitcoin Despite SEC Charges Against the Exchange

Last Updated June 21, 2023 8:44 AM
Omar Elorfaly
Last Updated June 21, 2023 8:44 AM

Key Takeaways

  • SEC used Coinbase to sell seized cryptocurrency worth millions of Dollars
  • SEC files a lawsuit against Coinbase for operating illegally as an unregistered trader
  • Coinbase’s IPO was approved by the SEC in 2021
  • Coinbase CEO Brian Armstrong holds a strong stance in favor of legal crypto trading

The US Securities and Exchange Commission has filed a lawsuit against Coinbase, a major crypto trading platform, claiming an unregistered trader while listing registered securities, weeks after the second anniversary of Coinbase’s IPO being accepted by the SEC. Just two months prior, the US government used Coinbase to sell seized cryptocurrency tokens. 

SEC Vs Coinbase

The US Securities and Exchange Commission, chaired by Gary Gensler filed a lawsuit against Coinbase, pivoting their case on what is considered a security and what is not. SEC’s case against Coinbase states that the crypto trader is operating unlawfully while trading in registered securities. This raises a legal paradox as the SEC, back in 2021, had approved the crypto trader’s IPO (COIN). Now, two years later, the SEC attempts to flag the trading platform as unlawful while it struggles to define whether cryptocurrencies are considered securities. 

In a tweet by Coinbase CEO Brian Armstrong, he addresses the lawsuit by mentioning that “The SEC reviewed our business and allowed us to become a public company in 2021.” He also added that “The SEC and CFTC have made conflicting statements, and don’t even agree on what is a security and what is a commodity.”

A Friend In Need

Adding to the mystery of the case is the fact that the US government had actually used Coinbase as a platform to sell off cryptocurrency tokens it had seized during a bust. The sale  of sold 9,861.17 Bitcoin (BTC) took place on March 14th, 2023, and amounted to $216 million. These tokens were part of 50,000 bitcoins that were seized in what is known as the Silk Road bust. Silk Road was a black market that facilitated the sale of illegal substances over the internet using Bitcoin. 


The listing, at the time, struck fear in the hearts of many crypto investors as they saw it as an omen that might lead to a drop in the value of Bitcoin. However, Bitcoin maintained its value and continued to rise. The government, in its filing, also mentioned that the remainder of the seized Bitcoin will be liquidated over time through public listings.


Considering that the US government has already utilized Coinbase as a trustworthy platform to sell cryptocurrencies for profit, it poses a dilemma when it comes to identifying the crypto trader as an illegal operator, questioning its own course of action.

Friendly Fire

SEC’s motion to sue Coinbase has not been popular among other governmental entities, unlike the case with Binance’s lawsuits. In the SEC vs Binance case, there has been no governmental pushback against addressing the alleged issue of commingling customer funds and defrauding US regulators. However, when it comes to Coinbase’s case, members of the US Congress have expressed their dismay at the SEC’s decision to sue Coinbase, claiming an unregistered trader 2 years after approving their IPO themselves. 


US Senator Bill Hagerty tweeted  “The SEC is weaponizing their role to kill an industry. Allowing a company to list publicly and then stonewalling their attempts to register is indefensible.” 


In a tweet  by US Senator Cynthia Lummis, she stated that “The SEC has failed to provide a path for digital asset exchanges to register, and even worse has failed to provide adequate legal guidance on what differentiates a security from a commodity”.



Coinbase CEO Armstrong chooses to separate his company’s case from other battles SEC wages against crypto trading platforms such as Binance by stating that “the Coinbase suit is very different from others out there – the complaint filed against us is exclusively focused on what is or is not a security.  And we are confident in our facts and the law.”