Operation Chokepoint 2.0 is underway and Coinbase is the newest target.
On March 22, 2023, Coinbase was served a Wells Notice from the Securities Exchange Commission. The stock dropped 20% on the news. They are the latest target of Operation Chokepoint 2.0 even after trying to work with regulators over the past few years. Will this push founders overseas or slow innovation in The United States? Here's my take!
This is not investment advice or an endorsement of the securities or property mentioned.
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I’m Scott McGregor, it’s the Hot Wallet Podcast, here’s what’s happening with Coinbase.
On March 22, 2023, Coinbase was served a Wells notice from the Securities Exchange Commission, or SEC. A Wells notice is the way that SEC staff tells a company that they are recommending that the SEC take enforcement action for possible violations of securities laws. It is not a formal charge or lawsuit, but it can lead to one. Coinbase stock dropped 20% on this news.
Now, this is just one of many they have issued in recent days.
The same day as the Coinbase one they also announced a charge against some Crypto promoters and influencers including Lindsay Lohan, and Logan Paul but that seems more like a cash grab because they are going to pay the SEC $400,000 bucks to make them go away…so
A few weeks ago the SEC issued one to Paxos, the issuer of the Binance BUSD stablecoin suggesting that it is an unregistered security. Paxos has come out today to say that they categorically disagree with the SEC staff because BUSD is not a security under the federal securities laws.”
This Wells Notice to Coinbase has to do with their Earn or Staking program and the listing of tokens on their exchange. Staking, for those who are unaware, is when you lend or Stake your tokens on an exchange or on-chain through a smart contract and then generate a yield from your assets. Some of these yields can get you anywhere from a few percent back to 20%, I’ve even seen it as high as a few hundred percent, but those ones usually end up being scams. A good rule of thumb is, if it seems too good to be true, it probably is.
Now Coinbase is slapping back at the SEC and blaming them for not giving companies who are trying to be good actors any real regulatory clarity. According to people inside Coinbase they have met with the S.E.C. over 30 times in the past year looking for and asking for clarity to be on the right side of the law and instead of giving it to them, they are now coming after them.
I understand the need for regulations and I have always said, I want regulations and protections for investors in this space but it just feels wrong when a company has to beg the government to help them not break the law and then has to get defensive and have it all done in the court system. Whether you invest in crypto or not, actions like this in my opinion do not incentivize founders or innovators to create value and jobs in a jurisdiction that is actively trying to put them in jail or use them for headlines and cash grabs to maintain some sort of relevancy.
We’re currently seeing the regional banking system breakdown in the united states and one of the organizations that is suppose to be protecting investors and bondholders of those banks instead using it’s power to come after people who are willingly coming in to try and develop regulations.
Coinbases Paul Grewal has said
“Last July, we filed a petition with the SEC, calling for more regulatory clarity. We have yet to receive a response to our petition. For comparison, over many years we have been able to successfully become a licensed and regulated crypto business in a number of other jurisdictions around the world, including Singapore, Ireland, Australia, and Germany.”
Now while a lawsuit may not be the way many of us saw this playing out, if Coinbase has a real case it could force regulators to get off their hands and give them the clarity they want. It could also go the other way and force Crypto innovators overseas.
In Canada, it took a lawsuit for the first Bitcoin ETF to be launched. The total market cap for all Digital assets is well over 1 Trillion dollars already. That tells me there’s money to be made for both early investors, founders, and countries that are Crypto Friendly. It’s just now a matter of time to see who picks up the ball that America is purposefully trying to drop.
Coinbase is still, as far as I can see a safe exchange to transact on but remember it’s always better to hold your tokens in on non-custodial wallet that you hold the keys to.
As the first guest of the Hot Wallet Podcast, Mark Yusko has said before, First they laugh at you, then they fight you, then you win. We’re in the fight stage now and in my opinion, it’s going to be a hard-fought battle.
I’m Scott McGregor, @scottrades on Twitter. Thanks for listening to the HotWallet podcast, please press follow or subscribe on whatever platform you’re getting this on and share this with a friend if you found it helpful. I’ll see you next time.
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