Coinbase Could Lose One-Third of Revenue Due to Legal Pressure
According to analysts, cryptocurrency exchange Coinbase is at risk of losing 30% of its total revenue due to ongoing legal pressure from federal regulators. The Securities and Exchange Commission (SEC) sued Coinbase in June for operating as an unregistered broker, national securities exchange, and clearing agency. This could force Coinbase to segregate its various crypto services, including trading, staking, and custodianship. The SEC has emphasized that such services should be regulated within traditional financial markets to avoid conflicts of interest.
Coinbase’s Court Hearing with the SEC
Coinbase is scheduled for a court hearing with the SEC on Wednesday in an attempt to have the lawsuit dismissed. However, experts believe that it will be difficult for Coinbase to prove that none of the assets on its platform are securities. The lawsuit alleges that over a dozen assets on Coinbase’s trading platform pass the Howey Test, which is used to identify investment contracts.
Does Coinbase List Securities?
Coinbase has argued that it doesn’t list securities and has called for the SEC to propose new rules for registering, selling, and trading digital asset securities. However, the SEC has been reluctant to do so. Previous lawsuits against crypto companies have yielded mixed results for the SEC. While a federal judge ruled in favor of Ripple by stating that XRP is not inherently a security, the SEC won a favorable ruling against Terraform Labs regarding its defunct cryptocurrency LUNA.
The Staking Controversy
Coinbase offers a staking service similar to Kraken’s, which resulted in Kraken being fined $30 million last year for failing to register its staking-as-a-service product as a securities offering. Coinbase argues that staking is not a security but has already been forced to halt its staking service expansion in four U.S. states.
Hot Take: Crucial Week for Coinbase
Coinbase is facing a critical week as it prepares for its court hearing with the SEC. With the possibility of losing one-third of its revenue, Coinbase must defend itself against allegations of operating as an unregistered broker and securities exchange. The outcome of this case could have significant implications for the future regulation of cryptocurrencies and digital assets in the United States.
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