By
Steve Muchoki
April 19th, 2024
Coinbase shares dropped by a large margin owing to reports that the exchange will be probed by the SEC for an operational indiscretion.
Coinbase (NASDAQ: COIN) shares plunged more than 21% on reports that it is facing a Securities and Exchange Commission (SEC) probe. The regulatory agency is investigating Coinbase to determine if the exchange facilitated trading for assets that should be securities. However, the crypto exchange seems unperturbed by the SEC’s concentrated attention on it and claims no wrongdoing. According to Coinbase’s chief legal officer Paul Grewal in a tweet:
“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.”
Furthermore, as reported by Bloomberg, Coinbase has been in a drawn-out tussle with the SEC over perceived digital assets rules. Last week, the American crypto exchange called on the Commission to propose clearer rules governing the affairs of digital assets. Although Coinbase plunged the most, other related stocks share the same fate. Both Marathon Digital (MARA) and MicroStrategy (MSTR) fell nearly 11%.
SEC-induced Tumble of Coinbase Shares Comes Amid Other Developments
The substantial plunge in Coinbase shares comes amid sharp declines in the crypto industry. Commenting on Coinbase’s position Edward Moya, senior markets analyst at Oanda, said in a Tuesday note:
“Coinbase was considered one of the better-run crypto companies that tried to obey the rules and work with the regulatory bodies.”
“The risk of tougher regulation has been a constant headache for crypto, and it seems that a couple of tough rulings could cripple a good portion of the cryptoverse,” added he.
Lastly, he explained that ruling some digital currencies as securities over others would further worsen the status quo for brokerages.
According to reports, the SEC’s probe into Coinbase is a separate development from the exchange’s alleged insider trading scheme. Furthermore, the regulator’s latest probe happened before the scheme, which resulted in fraud charges for at least three people. They include an ex-Coinbase product manager as well as two other people.
Since they began to enjoy increasing mainstream acceptance, digital currencies have sparked debates over how to regulate them.
Proper Crypto Industry Supervision
There are continuous calls for US regulators to do more to properly oversee the burgeoning crypto industry. In addition to providing more lucid rules of engagement, agitations also ask regulators to protect inexperienced investors. However, the argument over classifying digital assets remains controversial, especially concerning the proper supervisory body. Generally, while some say the Commodity Futures Trading Commission (CFTC) should be the overseer, others argue that the SEC is better suited.
For the most part, the SEC has repeatedly taken on the de facto role of crypto governance in the interim, classifying some as securities. The Commission’s scrutiny of Coinbase has intensified since the exchange expanded the number of tokens available for trading.