The world of cryptocurrency often finds itself battling legal turmoil. Many countries have an open approach to decentralized finance (DeFi) while others remain restrictive in their approach towards cryptocurrencies. In light of this, Coinbase, one of the leading cryptocurrency exchanges, recently found itself in a difficult situation. The US Security and Exchange Commission (SEC) had directed the exchange to delist all cryptocurrencies on their platform, except for Bitcoin.
The CEO of Coinbase, Brain Armstrong has confirmed the regulatory mandate expressing his concerns in a recent interview. He further confirmed to the Financial Times that accepting this order would have led to the delisting of approximately 250 tokens listed in Coinbase. This latest development has sent shock waves across the crypto community, raising significant concerns about the future of crypto.
SEC’s Claim Behind Delisting the Cryptocurrencies
The Securities and Exchange Commission (SEC) believes all digital assets except Bitcoin to be a security under Howey Test. As per the Howey Test, a transaction can be considered an investment contract under federal law if it follows the three criteria:
A financial investment where the participants are risking their own money;
In a common enterprise where the financial success of the investors is somewhat interconnected;
Where the investors have a reasonable expectation of profits from the effort of others.
The SEC debates that cryptocurrencies meet the definition under the Howey Test where there is an investment of money in a common enterprise i.e. the crypto network and an expectation of profits derived from the efforts of the developers and miners in the cryptocurrency ecosystem.
Gary Gensler, SEC chair had already expressed his concerns on everything other than Bitcoin being a security in an interview with New York Magazine in February.
Legal Action Against Coinbase
The legal action against Coinbase was initiated in early June stating that the platform is operating an unregistered exchange. The SEC identified thirteen cryptocurrencies offered by the exchange as unregistered securities. This regulatory action was seen to extend beyond Coinbase when they filed a similar lawsuit against Binance, another major exchange platform.
Brain and his team at Coinbase have protested with strict objection to the SEC’s interpretation of the law. The regulatory stance taken by both the SEC and Commodity Futures Trading Commission (CFTC) could have a chilling effect on innovation in the industry.
Potential Impact on the Crypto Market
The SEC’s directive is likely to have a significant impact on the future of cryptocurrency. With the delisting of several altcoins from prominent exchange platforms, their value will drastically deplete. Many new crypto projects will struggle to maintain their liquidity and credibility without the support of these major platforms. Ultimately the token of tokens entering the market will witness a sharp decline.
On the contrary, this would strengthen Bitcoin’s dominance in the market with all the new altcoins being delisted. Bitcoin’s price can experience a surge owing to its increased demand.
The SEC’s order of delisting all the cryptocurrencies except Bitcoin from major exchange platforms like the Coinbase has raised concerns throughout the cryptocurrency community. This also indicates to investors and crypto enthusiasts globally to keep their ears open to the changing regulatory scenario. Though the order of the SEC is not final or binding, it has provoked widespread concern regarding the uncertainty in the crypto industry.
Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
