Nasdaq-listed cryptocurrency exchange Coinbase Global Inc (NASDAQ:COIN) has received a Wells Notice from US regulator the Securities and Exchange Commission (SEC), a move that analysts have called an “ominous sign” and a likely precursor to an enforcement action.
Coinbase’s altcoin trading and staking products are under review and at risk if the SEC determines that the products constitute unregistered securities.
Brian Armstrong, chief executive of Coinbase, took umbrage at the prospect of a regulatory enforcement action, pointing out that “two years ago the SEC reviewed our business in detail and approved Coinbase to go public”.
“Our S1 clearly explained our asset listing process and included 57 references to staking,” said Armstrong.
1/ Today Coinbase received a Wells notice from the SEC focused on staking and asset listings. A Wells notice typically precedes an enforcement action.
— Brian Armstrong (@brian_armstrong) March 22, 2023
Analysts at Jefferies estimate that up to 35% of Coinbase’s revenue is “potentially at risk, depending on the SEC’s course of action”.
While bitcoin trading would not be affected – the SEC has previously agreed that the world’s largest cryptocurrency might constitute a commodity rather than a security – altcoins represented 25% of net revenue and 46% of transaction revenue in the latest quarter
Staking represented roughly 10% of revenues in the fourth quarter and 12% for the whole financial year.
Coinbase’s chief legal officer Paul Grewal argues that the SEC has been uncooperative in recent discussions regarding token listings.
“We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead,” stated Grewal, calling the Wells Notice a “disappointing development”.
Other recent enforcement actions from the SEC included a US$45mln fine issued to crypto lender Nexo Capital, and a US$30mln fine issued to crypto exchange Kraken for failing to register its crypto staking service.