Coinbase Gets a Wells Notice: "We're Playing Pickleball"

Coinbase gets a Wells notice. While this isn't terribly surprising, it does foreshadow the US war against crypto is intensifying.

Imagine you've got both football and soccer refs on the field, but we're actually playing pickleball (fastest growing new sport in America). The refs can't really agree on the rules of this new game, and one of them decides to change a call they made back in April 2021.

That’s Coinbase COIN 0.00%↑ CEO Brian Armstrong replying to a comment on Twitter yesterday. The war between the SEC and the entire domestic crypto industry seems to be hitting a fever pitch after a post-market close Wells Notice disclosure from Coinbase yesterday. Gary Gensler’s SEC is telegraphing legal action with this notice and Coinbase is ready for a fight. The blog post announcing the Wells Notice is truly an amazing read:

Today’s Wells notice does not provide a lot of information for us to respond to. The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so. Today’s Wells notice also comes after Coinbase provided multiple proposals to the SEC about registration over the course of months, all of which the SEC ultimately refused to respond to. 

The entire post is really worth your time if you have even a shred of belief that the regulations are clear and that all crypto businesses have to do is comply with existing laws:

We met with the SEC more than 30 times over nine months, but we were doing all of the talking. In December 2022, we asked the SEC again for some feedback on our proposals. The SEC staff agreed to provide feedback in January 2023. In January, the day before our scheduled meeting, the SEC canceled on us and told us they would be shifting back to an enforcement investigation. We now understand that there is disagreement within the Commission itself on how to proceed with a registration path.

So if the SEC doesn’t even know how registration should go, how could businesses in the industry possibly have any clue what they should be doing to properly comply with rules that don’t exist? I talked about this in more detail in a recent episode of LAM’s Cryptoverse. Regulation thoughts begin at about the 21 minute mark:

The argument I made in that video was essentially that the Securities and Exchange Commission has not been acting fairly or in good faith and we can see that thinking corroborated by Coinbase’s real world experience:

At no point in this investigation has the SEC told us a single specific concern about a single asset on our platform. To move to a Wells notice now, is unusual to say the least. Especially because our staking and exchange services are largely unchanged since 2021, when the SEC reviewed our S-1 and allowed us to become a public company. Our core business model remains the same. 

My read? What Coinbase was doing was fine in April of 2021 when crypto was still a simple dog money joke. But since half of Congress was scammed by Sam Bankman-Fried and Bitcoin is rallying in anticipation of the money printing that is sure to come following traditional bank failures, the SEC is doing everything it can to keep the public out of dollar alternatives that can’t be centrally controlled. It starts with everything but Bitcoin - and then they come for that too.

Coinbase went on to share a quote from Federal Bankruptcy Judge Michael Wiles:

Regulators themselves cannot seem to agree as to whether cryptocurrencies are commodities that may be subject to regulation by the CFTC, or whether they are securities […] subject to securities laws, or neither, or even on what criteria should be applied in making the decision. This uncertainty has persisted despite the fact that cryptocurrency exchanges have been around for a number of years.

This is why fighting the SEC in court matters. We’re seeing it with Voyager. We’re seeing it with Grayscale. When you put these arguments from the SEC in front of a judge, the wheels start to fall off quickly. Cryptocurrencies are in the United States and there is absolutely nothing Gary Gensler, Elizabeth Warren, or Brad Sherman can do about it. The only question is will the companies that build with this technology be allowed to exist domestically or will US Regulators punt on financial relevance post-dollar reserve system.

If you don’t want to be stuck with the CBDC, you’re probably going to have to put up a fight too, anon. Pick up a paddle.

Disclaimer: I’m not an investment advisor or a law expert.