A research report by Berenberg showed that the Securities and Exchange Commission (SEC) is exceptionally likely to implement an enforcement action against Coinbase. The report reveals that it may replicate the situation that might be similar to the moves made by the agency against competing exchanges Kraken and Bittrex.
SEC’s Enforcement Action Looming on Coinbase
The report came amidst the SEC’S robust refutation of Coinbase’s lawful strategy seeking to compel the regulator to develop rules to govern the provision and trading of cryptocurrency.
Berenberg, a Hamburg-based bank, claimed that out of the $736 million- revenue reported by the cryptocurrency exchange platform for the first quarter, at least 37 percent was linked to transaction fees. In addition, the revenues were linked to the spreads charged for token trading apart from bitcoin and charges from the staking service.
A publication on Forbes by Paul Palmer, Berenberg’s senior equity research analyst, shows that in the future, the revenue streams, interest incomes associated with the U.S dollar and Coinbase’s custody fees might get entangled in the Securities and Exchange Commission’s crypto-industry magnet.
Further, he claimed that investors must embrace the agency’s stance that all crypto tokens, except bitcoin, are unregistered securities. Thus, all platforms facilitating token trading in the United States are susceptible to bear enforcement actions by SEC. Such have the potential to affect their business activities significantly.
Coinbase Unlikely to Exit US
Palmer also added that an effective pivot away from the United States would be unreasonable for the exchange since nearly 86 percent of all earnings by 31st March came from its operations across the nation. According to the bank’s analysts, the cryptocurrency exchange platform has a hold rating whose price target is 55 dollars.
On Monday, the Securities and Exchange Commission requested a federal court to object to Coinbase’s demand to clarify its position on the crypto ruling. According to the commission’s attorneys, the exchange’s choice for different or quicker regulation should not result in extraordinary relief.
Coinbase Laments the Ambiguous Regulatory Climate
Coinbase’s chief legal officer Paul Grewal tweet claimed that this might be the first time that the Securities and Exchange Commission is providing a formal explanation before the court concerning its perspectives on the mechanism to formulate regulations to govern the crypto industry.
Specifically, Grewal wrote that the agency’s response supports the exchange’s prevailing concern that the crypto industry operates in an ambiguous regulatory climate. Such sentiment arises from the difficulty of identifying the scope of the SEC’s control. He acknowledged the agency could deploy a dynamic approach and later adjust enforcement decisions.
According to James Murphy, a securities attorney based in Virginia, the SEC believes it is within its rights to delay action. It implies that reliance on the time factor to petition the court to dismiss SEC’s enforcement lacks merit. Consequently, Murphy believes that SEC can still initiate legal actions against crypto entities violating the existing rules.
Murphy admitted the existence of situations where in the past, courts failed to provide relief to petitioners. In such cases, government agencies have taken a long time to implement action on petitions.
SEC Delay Tactics Explained
The attorney also claims that according to SEC, Coinbase’s petition citing delay action is permissible for government work. Therefore, he deduced that the Securities and Exchange Commission could get away with the delay strategy.
A Twitter post by Austin Campbell claimed that investors planning to execute a project that needs legal precision and a reasonable and sane legal regime should pursue other locations outside the U.S.
Campbell warned that deploying delay tactics could cost SEC in the ongoing cases if a party were to prove intention to avoid making crypto rules. Taking legal action against crypto organizations would become challenging, particularly if one refuses to be a part of rulemaking. Such could occur if a judge holds that the existing rules lack clarity and relevancy to cryptos.
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