Coinbase prepares for a legal battle with the SEC and considers relocating outside the U.S. due to regulatory concerns.
Coinbase, a leading cryptocurrency exchange, is preparing for a legal showdown with the U.S. Securities and Exchange Commission (SEC) as stated by its CEO, Brian Armstrong. This move comes in the wake of the SEC issuing a Wells notice to Coinbase last month, indicating the possibility of upcoming formal charges. Armstrong also hinted at the option of relocating the company’s base from the United States if the regulatory environment remains unfavorable.
SEC’s Wells Notice Raises Concerns for Crypto Companies
The Wells notice, typically considered one of the last steps before the SEC files formal charges, presents the regulator’s arguments and offers the accused party an opportunity to respond. However, Armstrong expressed frustration over the SEC’s lack of transparency regarding their specific concerns with Coinbase’s operations.
Despite over 30 meetings with the SEC in the past year, Coinbase hasn’t received any guidance on how to improve or modify its business practices. The SEC has intensified its focus on crypto companies, particularly those allegedly involved in offering unregistered securities. Consequently, the regulator has initiated several enforcement actions against these companies. A prime example is the ongoing legal battle between the SEC and Ripple since 2020, where the SEC claims that Ripple sold unregistered securities, a charge that Ripple denies.
Coinbase Stands Ready for a Prolonged Legal Battle
When questioned about the prospect of a drawn-out legal fight with the SEC, Armstrong affirmed that Coinbase is fully prepared to face the challenge. He explained that although the company doesn’t actively pursue litigation, they are ready to go to court to obtain the necessary clarity in this matter. The cryptocurrency industry has been vocal about the lack of definitive guidance from the SEC, while the regulatory body maintains that the rules are adequately outlined under existing legislation.
Armstrong accused the SEC of neglecting its duty by failing to provide a transparent rulebook for the crypto market that would ensure both its safe operation and growth within the country.
Impact of Regulatory Issues on Coinbase’s Stock Performance
Coinbase, a U.S.-listed company with a stock increase of around 90% this year, has investors keeping a close eye on the unfolding SEC situation. Barclays noted earlier this month that the regulatory pressure on Coinbase’s stock has significantly increased following the receipt of the Wells notice. They further posited that if various cryptocurrencies were classified as securities, Coinbase would be required to register as a securities exchange to continue trading in these assets.
Current securities law prohibits securities exchanges from offering services directly to retail customers, which might force Coinbase to separate its exchange and brokerage operations.
The Prospect of Relocating Coinbase Outside the U.S.
At a recent fintech event in London, Armstrong acknowledged the potential for the U.S. to play a significant role in the global crypto market. However, he noted that the country is currently lacking in regulatory clarity. If this situation persists, Coinbase might consider investing more in international markets or even relocating the company’s headquarters.
Armstrong also mentioned that Coinbase is actively exploring other markets for investment beyond the U.S., with plans to invest more in the U.K. as it positions itself as a cryptocurrency hub. He emphasized that, like any business, Coinbase must decide how to allocate its budget, including which countries to invest in, and with the U.S. lagging in regulatory clarity, they are considering other market options.