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Coinbase vs. SEC Trial Begins: Will Exchange Compromise to Ensure Bitcoin ETFs?

Published July 13, 2023 4:14 PM
Omar Elorfaly
Published July 13, 2023 4:14 PM

Key Takeaways

  • Coinbase has so far failed to dismiss the SEC’s lawsuit
  • The initial hearing is just to identify the general tone of the lawsuit
  • Will Coinbase pick its battles to enjoy its ETF wins?

On Thursday, June 13, a pre-motion hearing is taking place for the SEC’s lawsuit against the biggest US-biggest crypto exchange Coinbase. The regulating body initially filed the lawsuit back in June. Coinbase had attempted to dismiss the complaint filed by the SEC in late June by appealing to Judge Katherine Polk.

Needless to say, the motion was denied and the SEC plans to move forward with litigation. The hearing was originally scheduled for August, but it seems that the SEC is in a rush to reach a conclusion on the matter. 

The exchange is accused of trading in unregistered security as far as the SEC, the same regulating body that had granted Coinbase the green light to launch its IPO (COIN) two years ago.

Coinbase is attempting to secure its future in crypto by attaching itself to Wall Street corporations that are en route to taking over the crypto market.

Litigation Rally

The SEC is on a roll of lawsuits filed against major crypto exchanges. Currently, Ripple, a US-based exchange is going through its second year of litigation with the SEC with no clear end in sight.

Moreover, the SEC filed thirteen lawsuits against Binance, the world’s biggest crypto exchange, for allegations, including wash trading, commingling customer funds, and evading US regulators.

Coinbase is a relative addition to the SEC’s kill list. On June 6th, the SEC officially filed charges  against Coinbase for the following allegations:

“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions,” said SEC Chair Gary Gensler, adding that “In other parts of our securities markets, these functions are separate.

Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. 

Further, as we allege, Coinbase never registered its staking-as-a-service program as required by the securities laws, again depriving investors of critical disclosure and other protections.”

A New Coinbase To Protect?

“Our mission is to increase economic freedom in the world. Everyone deserves access to financial services that can help empower them to create a better life for themselves and their families.”

This is the mission statement users can find going through Coinbase’s website. However, recent development in the exchange’s business philosophy may show a change of heart.

Coinbase was named as a “surveillance partner” on multiple ETF applications filed by Wall Street corporations, including BlackRock, Valkyrie, and Fidelity.

Wall Street is now at the mercy of the SEC, led by Chair Gary Gensler, to able to enter the crypto market by bringing the old TradFi ways into the DeFi world. 

The SEC is seemingly adamant about shaping the crypto market to only accommodate a handful of tokens: Bitcoin, Ethereum, Bitcoin Cash, and LiteCoin.

For that reason, Coinbase is still at legal odds with the regulating body. Also, for the same reason, new crypto exchanges are emerging that only trade the aforementioned tokens.

Considering Coinbase has set in motion a future that ties itself to Wall Street that plans to abide by the SEC’s definition of securities, will Coinbase try to reach a settlement with the regulating body over the charges mentioned above to secure a future with Wall Street?

As successful as Coinbase is, it wouldn’t want to meet the same fate Binance is living through. Binance has now halted all USD transactions, OTC trading, and trade pairs as a result of their SEC-related litigations.

Coinbase’s new partners (i.e., BlackRock and co.) collectively manage assets worth over $15 trillion. Logically, a future with the world’s biggest financial institutions is more lucrative than the trade of altcoins. But, is Coinbase willing to make that compromise?

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