Securities and Exchange Commission (SEC) Chair Gary Gensler has issued a statement on the denial of a petition pursued by Coinbase (NASDAQ:COIN) in regard to a demand to craft specific rules for digital assets.
In 2022, Coinbase announced a formal petition asking the SEC to:
“… propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities. Digitally native securities are recorded and transferred using distributed ledger technology and do not rely on centralized entities or certificated forms of ownership that characterize traditional financial instruments. Transactions in these securities (henceforth “digital asset securities”) are executed and settled in real-time, permanently recorded on blockchains, and visible with equal access to all market participants. This is a paradigm shift from existing market practices, rendering many of the Commission rules that govern the offer, sale, trading, custody, and clearing of traditional assets both incomplete and unsuitable for securities in this market.”
In 2023, Coinbase initiated a lawsuit to compel the SEC to respond as it is required to do so – by law. At that time, Coinbase said the federal action sought a response to their petition or to commence formal rulemaking:
“The rulemaking process exists so that agencies can develop regulation with the benefit of public input, and have their position tested through judicial review. To date, more than 1,700 entities and individuals have submitted comments to Coinbase’s petition echoing the request for clarity.”
Today, a response has been posted. Unsurprisingly, the SEC has denied the petition.
Gensler stated:
“There is nothing about the crypto securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws. Congress could have said in 1933 or in 1934 that the securities laws applied only to stocks and bonds. Instead, Congress included a long list of 30-plus items in the definition of a security, including the term “investment contract.”
And;
“… to the extent that crypto assets are offered and sold in the form of an investment contract, and to the extent that entities intermediate transactions in crypto asset securities, the federal securities laws apply.”
Gensler added that he looks forward to working with crypto projects that wish to comply with the law – something that belies a point of friction within the industry that believes the Commission has simply ignored their attempts to work with the SEC, while the Commission claims they are willing to engage with the industry.
Gensler stated:
“As I said prior to the collapse of one of the largest noncompliant crypto intermediaries that cost investors billions of dollars, meaningful engagement with the SEC is always welcome, and I look forward to working with crypto projects and intermediaries that wish to comply with the law. Of course, just as in other parts of the securities markets, registration and compliance take work.”
Gensler visited with CNBC yesterday and once again lambasted the shortcomings of the crypto industry in advance of this statement.
You may view the statement published by Chair Gensler here.