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Coinbase is poised for a legal confrontation with the Securities and Exchange Commission (SEC) in pursuit of much-needed clarity regarding the application of federal securities laws to the cryptocurrency sector, as stated by CEO Brian Armstrong.
If the regulatory environment does not improve, the executive indicated that the exchange might contemplate relocating outside the United States.
Will Coinbase Relocate Internationally?
In a discussion with CNBC on Tuesday, Armstrong criticized “certain regulators” for adopting a “regulation by enforcement approach” to cryptocurrency in the US – a phrase he has previously employed to characterize the SEC’s stance towards the sector. Due to this assertive strategy, he acknowledged that Coinbase is already exploring other nations for the potential establishment of new headquarters.
“The UK is actually a very good one for us,” the CEO remarked. He pointed out that this region ranks as Coinbase’s second-largest revenue-generating country, and its officials have shown encouraging interest in transforming the nation into a Web3 hub.
Coinbase is specifically facing scrutiny from the SEC, which issued a Wells Notice to the firm earlier this month, signaling an intention to initiate legal action against the company. The notice claimed that Coinbase had breached federal securities laws, which Armstrong believes are associated with the assets listed on the exchange, along with its staking as a service offering.
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The CEO mentioned that the SEC had never informed the exchange about how it could improve compliance during over 30 meetings in the past year.
“I think we’re going to have to actually end up going to court to get the clarity we need and create the case law,” he stated, alluding to judicial precedent.
A Prolonged Legal Dispute
One of the SEC’s most notable ongoing lawsuits in the cryptocurrency sector began with Ripple in December 2020, when the agency claimed that the company’s XRP token was an unregistered security. Armstrong expressed that Coinbase is ready for its own legal battle with the agency to evolve into a similarly lengthy ordeal if necessary to achieve legal clarity.
“We never seek litigation but it seems, in this case, they have initiated it,” he added. “The law is on our side.”
On another front, the SEC is engaged in a legal dispute with Grayscale – the largest Bitcoin fund globally – which filed a lawsuit against the agency last June for “arbitrarily” denying approval of the firm’s application to launch a Bitcoin Spot ETF.
During the initial oral hearing for the case in early March, judges expressed skepticism regarding the SEC’s claims that there was a significant distinction between the criteria for approving Bitcoin Futures ETFs and spot ETFs. This event led to a 16% increase in GBTC on that day.
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