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In July 2022, American’s woke up everywhere to the headline that Coinbase, a popular cryptocurrency trading app, is under scrutiny from the SEC. The headlines officially said it was under investigation for selling illegal securities, but what does this mean? Will Coinbase be shut down?
Read on to learn more about the allegations Coinbase is facing and what they mean for the future of the platform.
Coinbase was officially charged by the SEC as possibly selling unlicensed securities. But while this may sound bad, you should know that as a whole, Coinbase will be just fine. This is because the allegations, while technically against the company, actually came about because of a couple of employees in particular who may have committed a serious crime.
As a whole, Coinbase is a law abiding app which has been investigated and approved by the SEC in the past, meaning you don’t have to worry, Coinbase will still be there to hold you cryptocurrency for years to come. The news proved detrimental however, as Coinbase stock fell 21% after the announcement they were being investigated. But, as a whole, Coinbase is not actually being investigated in the way most people think.
The defendant in a specific lawsuit by the SEC is against a former Coinbase employee, specifically a manager, who supposedly used his inside knowledge of what coins the company planned to list on their platform next and informed his friend and brother that they should buy them.
While this may not seem to be too big of a crime, when you consider the Coinbase effect, a phenomenon which shows that when a coin is listed on the platform it skyrockets in value (mainly because more people have access to buying it), you have to realize that knowing what coins would be listed in advance would be the same as insider training.
The employee himself didn’t make any of the purchases, but his family member and friends did, making him a perpetrator of insider trading. Coinbase fought back on behalf of their employee however, as they stated that insider trading is something that can only happen with registered securities and that Coinbase doesn’t actually have any securities on its site because cryptocurrencies aren’t securities.
This launched a new probe by the SEC into Coinbase, as they are now reviewing if any of the cryptocurrencies on Coinbase can be considered securities. This however, is more of a formality rather than an official investigation by the SEC because it’s not like Coinbase has been operating in secret all of these years. The SEC has been aware of Coinbase for years and has, in fact, in the past approved of it listing new cryptocurrencies. The only thing that has changed is that now the SEC is afraid some people used this knowledge to make themselves rich and they will not be punished for their actions.
It is unclear what damages the SEC is seeking in the insider trading case, but if Coinbase is found to have listed securities without being a registered exchange, the fines can be hefty. It’s important to note that while the probe into Coinbase isn’t serious for users, it will have a huge effect of the outcome on the case against the former Coinbase manager who is being charged with inside trading.
While this is bad news for the former Coinbase manager in the SEC case, it really is a good move for cryptocurrency. One of the problems with the cryptocurrency world right now is that it is riddled with scams and filled with people who have no idea how cryptocurrencies work. If cryptocurrency is regulated by the government, coins will have to meet specific requirements to be listed on exchange which will make them safer for the general population who has no investing knowledge.
It is important to note however, that what makes cryptocurrencies so great is the fact that they can’t truly be regulated by the government. While the government can make restrictions as to which exchanges can offer cryptocurrency services and the protections they must have in place, the government can never truly control cryptocurrencies like Bitcoin. Basically these new regulations will just help the idiots to keep from being scammed.
Even if the regulations do come through that cryptocurrencies are securities and Coinbase does have to register as an official exchange, not much will change for most cryptocurrencies, however the fees of the platform may increase. But because most people don’t know how to buy cryptocurrency without one of these platforms, most will pay the increased fee to continue trading.
Some original supporters of cryptocurrency may choose to go elsewhere for trading, but chances are these OG’s aren’t the ones using Coinbase in the first place. So regardless of the SEC’s ruling and the government’s new laws, Coinbase will likely be here for users to continue trading another day.
Regardless of the outcome of the SEC’s investigation, we believe Coinbase will still be around. And even if they do close their doors someday, they are a platform we trust to do the right thing and not run with everyone’s money like other scam platforms have done.