COIN, the Coinbase stock listed on NASDAQ took a hit recently. This hit occurred following the news of the exchange coming under investigation by the United States Securities and Exchange Commission (U.S. SEC). But with the global crypto market entering a bearish phase and the market suffering repeated hits owing to activities surrounding LUNA and CELCIUS, there has been too much fear-mongering and a huge rumour mill surrounding Coinbase.
The main reason for such a comparison is owing to its CEFI-centric business model. As a CEFI-centric crypto exchange/company, the firm focuses its activities around custodial wallets. But it should be noted that unlike LUNA or CELCIUS or any other DEFI and DEX for that matter, Coinbase doesn’t use its clients’ assets to lend or stake or create other income-generating ventures. In fact, it could be touted as the #1 cryptocurrency exchange which most complies with U.S. SEC regulations.
Often it has even been found to be compliant with the whims and wishes of the US regulatory body making it a highly unlikely player who could cause concerns about loss of clients’ funds and digital assets.
So, what is the current SEC investigation about?
The latest probe is regarding a complaint by the U.S. SEC that the firm is offering unregistered securities. The firm has been under scrutiny from the regulator since its decision to expand the number of tokens which it offered for trading. The news hit the market on Tuesday, with multiple online media outlets such as Bloomberg and CNBC citing the SEC’s probe of Coinbase.
Given the already bearish market outlook surrounding cryptocurrency, news of the probe further added fuel to various negative influences resulting in stock plummeting by nearly 21% at end of the market session. Earlier this month, Coinbase came under probe from SEC on two complaints. For its ex-product manager and two other people being involved in insider trading. And another filing was made on the same day which claimed that the firm offered unregistered securities among assets involved in the insider trading scheme.
Coinbase strongly refused charges from the SEC which claimed that the firm offered tokens to trade in form of securities. Speaking about the probe, Mr Paul Grewal — Chief Legal Officer of Coinbase said on the company’s blog that none of the tokens listed by the company for trading are securities. He reiterated his stance tweeting “I’m happy to say it again and again: we are confident that our rigorous diligence process — a process the SEC has already reviewed — keeps securities off our platform, and we look forward to engaging with the SEC on the matter”.
Will the probe actually affect Coinbase?
The U.S. SEC bases its complaint on its definition of security as “an investment of money in a common enterprise with a reasonable expectation of profit derived from the efforts of others”. But this definition seems to have been created to argue related to a different issue in a case in U.S. Supreme Court. SEC has no clearly defined, tailor-made rules and regulations pertaining to the cryptocurrency market. SEC’s argument can only be viewed as a one-time forced regulatory enforcement activity rather than a clear-cut rule-based argument.
Given Coinbase’s more conservative approach towards crypto trading activities and more of a twisted argument than fact from the U.S. SEC, the firm is unlikely to suffer from the probe. The impact of the probe is more likely to be focused on individuals involved in insider trading activity. Coinbase stocks may continue to suffer owing to news-based impacts and the rumour mill, but this is only in short term.
Clients won’t see any of their crypto assets being impacted in any kind unlike in DeFi-based dApps and DEX which forces the liquidation of assets based on the value of tokens and collateral. Once the bearish run ends, various tokens will see their value raise once again resulting in increased investor and trading activity directly impacting the share value of COIN stocks in the market.
