Coinbase has called for the creation of a single dedicated body to regulate digital assets, arguing that current oversight is too fragmented and that centuries-old US securities laws are not suited to today’s cryptocurrency markets.
In a policy document shared with Congress, the largest U.S. cryptocurrency exchange urged lawmakers to separate oversight of digital asset markets from other financial markets, as it goes on the offensive on Capitol Hill afterward. from a recent dispute with the Securities and Exchange Commission.
“To avoid fragmented and inconsistent regulatory oversight of these unique and concurrent innovations, responsibility for digital asset markets should be assigned to a single federal regulator,” Coinbase said, noting that the SEC, the Commodity Futures Trading Commission Basic and certain state regimes supervise all parts. of the crypto industry.
The company also proposed creating an additional self-regulatory organization, or SRO, to support supervision under this new digital asset regulatory regime, reflecting traditional financial markets.
The proposals come as tensions between Coinbase and the SEC have escalated in recent months. SEC chair Gary Gensler said in September that Coinbase had not registered with the regulator “even though they have dozens of tokens that can be securities,” a characterization the company disputes.
Chief Executive Officer Brian Armstrong also accused the regulator in September of being “incomplete” and opaque after he threatened to sue the company if it launched its Lend product, which would have paid interest on cryptocurrencies staked, without registering with the regulator. Coinbase later shelved the blueprints.
In its proposal Thursday, Coinbase argued that securities laws implemented in the 1930s struggle to adapt to today’s digital markets and, as a result, risk stifling innovation and driving crypto entrepreneurs abroad. The document, seen by the Financial Times, was the first reported by The Wall Street Journal.
While Gensler has said that many crypto products could be defined as securities, he has issued no further guidance, saying the existing rules are clear enough. In recent months, he has urged crypto platforms to contact the SEC and discuss whether they should register with the agency.
The regulatory debate revolves in part around whether digital products are “investment contracts” and therefore considered securities under federal law. According to what is known as the Howey test, the Supreme Court has ruled that an investment contract exists when “a person invests his money in a joint venture and is induced to expect profits solely from the efforts of the promoter or of a third”. .
“While the Howey test plays an important role in defining what a security is, its application to digital assets has even led the SEC to be unclear and inconsistent,” Coinbase said in its proposal.
The company also argued that the decentralized and open source nature of digital assets means that the current disclosure requirements in securities laws are not fit for purpose.
“Each owner of a digital asset can examine for himself the functionality and governance structure of the asset,” he said. “Applying the disclosure requirements of public companies would likely mislead the public as to what is actually material information about a digital asset.”
The SEC did not immediately respond to requests for comment.