Coinbase Shares Fell After Receiving ‘Wells Notice’ From SEC Focused On Staking And Asset Listing

(CTN NEWS) – After receiving a warning from the Securities and Exchange Commission that it would be charged with securities offenses, Coinbase’s stock fell 15% on Thursday.

The cryptocurrency market has been in a sort of renaissance for about two weeks, emerging from the crypto winter into which it had been sunk since last year.

As investors continue to be alarmed by the banking industry’s confidence issue, cryptocurrency prices have sharply recovered.

According to data provider CoinGecko, Bitcoin was trading at roughly $28,800 today, up 46% since March 10, when Silicon Valley Bank abruptly failed owing to a bank run.

5/ Going forward the legal process will provide an open and public forum before an unbiased body where we will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on…

— Brian Armstrong (@brian_armstrong) March 22, 2023

According to analysts, Bitcoin has benefited from being seen as a substitute for fiat money.

The 2008 financial crisis led to the federal government bailing out the banks in order to prevent the collapse of the global financial system, prompting the creation of digital currency.

So, it is not surprising that Bitcoin and other cryptocurrencies increase in value when there are issues with the established financial system.

But, Coinbase (COIN) – Get Free Report ruined the fun.

‘Wells Notice’

The Securities and Exchange Commission recently sent a notice to the bitcoin exchange, which it just announced (SEC).

This indicates that the largest US cryptocurrency exchange could be the target of enforcement action by the regulator.

Coinbase stated in a regulatory filing that it “received a ‘Wells Notice’ from the staff of the Securities and Exchange Commission on March 22.

Stating that the staff has advised the company that it made a “preliminary determination” to recommend that the SEC file an enforcement action against the company alleging violations of the federal securities laws.”

The business believes that these prospective enforcement actions would pertain to elements of its spot market, staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet, it continued.

The SEC has been claiming for months that, except Bitcoin, most cryptocurrencies and goods tied to them are securities, which would give the regulator significant control over the sector.

The agency defines security as “a financial investment in a shared company with a reasonable prospect of profit derived from others’ labor.”

The SEC wants to refer to a Supreme Court decision from 1946 called the Howey Test, which defines what constitutes an “investment contract” and is consequently covered by U.S. securities laws.

An investment contract occurs if money is invested with the expectation of a profit.

Until now, tokens or coins have not been considered securities.

This indicates that they are exempt from severe regulatory oversight and are not bound by the same standards of financial transparency and disclosure as, for instance, stock in a corporation.

Tokens are also subject to a less stringent listing process than securities.

What Is at Stake?

The SEC targets both coins and staking, which is the practise of investors locking up or “staking” their crypto tokens with a blockchain validator.

When their staked crypto tokens participate in the process of validating data on the blockchain, the objective is to be rewarded with fresh coins.

The blockchain puts your cryptocurrency to work, which is how it generates incentives while being staked, according to Coinbase.

Many cryptocurrency exchanges are increasingly turning to staking services as a source of income due to the decline in cryptocurrency prices last year and the ensuing dip in trading volumes.

Yet, the SEC is adamant.

The Kraken exchange was subject to an enforcement action by the SEC last month because of its staking service. According to the SEC, Kraken’s staking service involved the unauthorized sale of stocks.

Without admitting or disputing guilt, Kraken settled the case, paid a $30 million fine, and was compelled to shut down the business.

The potential legal case “may seek injunctive relief, disgorgement, and civil fines,” according to a March 22 warning from Coinbase.

1/ Today Coinbase received a Wells notice from the SEC focused on staking and asset listings. A Wells notice typically precedes an enforcement action.

— Brian Armstrong (@brian_armstrong) March 22, 2023

After the conclusion of an investigation, a “wells notification” is frequently given. The corporation is given the chance to present its case to the regulator. The warning may result in legal action, settlement, or enforcement action.

A Wells notice from the SEC focusing on staking and asset listings was delivered to Coinbase today. Wells CEO Brian Armstrong responded on Twitter, “A Wells notice normally comes before an enforcement action.

“We’re disappointed that the SEC is prioritising litigation over productive discussion. But if going to court is necessary, so be it. Paul Grewal, chief legal officer at Coinbase, stated that we would protect the law.

“We do not list securities. Over the years, about 240 of the thousands of crypto assets CB has examined have fulfilled our requirements to be listed on our platform.

We've also been able to successfully become regulated by another U.S. federal regulator, obtaining our DCM and DCO license from the CFTC. And by many U.S. state regulators. The SEC remains a sole outlier here. 7/15

— paulgrewal.eth (@iampaulgrewal) March 22, 2023

The SEC has previously served Coinbase with a “wells notice.”

The site received a warning from the federal government two years ago regarding “Lend,” a programme that would have allowed customers to earn money by lending out their cryptocurrency. It was regarded as a security by the SEC.

Coinbase eventually gave up on the endeavor.

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