Crypto price: Market fears crackdown amid ‘legal threats’ to Coinbase

Cryptocurrency exchange boss says firm is ‘right on the law, confident in the facts, and welcomes the opportunity to get before a court’

A flipped version of the logo for the crypto exchange Coinbase is reflected in a mobile phone screen on 9 November, 2021 in London, England (Getty Images)

Leading crypto exchange Coinbase has said it received “legal threats” after asking US regulators for clearer rules surrounding cryptocurrency.

The Securities Exchange Commission issued a Wells notice to Coinbase on Wednesday, which typically signals that the SEC plans to take enforcement action for possible violations of securities laws.

“It’s not a formal charge or lawsuit, but it can lead to one,” Coinbase noted in a blog post on Wednesday.

“Rest assured, Coinbase products and services continue to operate as usual - today’s news does not require any changes to our current products or services.”

One of the Coinbase products under scrutiny is its staking business, which allows customers to earn rewards by setting aside some or all of their crypto balance for cryptocurrencies like Ethereum (ETH) that run on a proof-of-stake blockchain.

As one of the few publicly listed crypto companies, Coinbase’s share price was quick to react to the news, dropping more than 8 per cent in a matter of hours.

The crypto market more broadly was less volatile but dropped nonetheless. The price of cryptocurrencies including bitcoin dropped slightly following the news.

Coinbase CEO Brian Armstrong said his company was confident of resolving the impending action, tweeting that Coinbase is “right on the law, confident in the facts, and welcomes the opportunity... (and by extension the broader crypto community) to get before a court”.

Crypto regulation has struggled to keep pace with the nascent industry, according to Coinbase, with the exchange previously criticising the SEC over what it claimed to be vague regulatory structure.

SEC Chair Gary Gensler has claimed that cryptocurrency exchanges in the US like Coinbase are operating unregistered securities exchanges and should therefore take action to register with the SEC or face legal action.

“Although we don’t take this development lightly, we are very confident in the way we run our business – the same business we presented to the SEC in order for us to become a public company in 2021,” Coinbase’s blog post stated.

“We continue to think rulemaking and legislation are better tools for defining the law for our industry than enforcement actions. But if necessary, we welcome the opportunity for Coinbase and the broader crypto community to get clarity in court.”