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Due to allegations of operating illegal exchanges by the U.S. Securities and Exchange Commission (SEC), cryptocurrency companies like Coinbase (COIN) and Binance have found themselves in a difficult situation. However, a separate component of the problem has been clarified by the most recent industry testimony before the US House of Representatives. These companies appear to have pleaded with the SEC for assistance in properly registering, but their petitions have been denied.
Gary Gensler, the chairman of the SEC, has repeatedly highlighted how crucial it is for crypto companies to come out and register with the organization. But it appears that reality is very different from rhetoric. Dan Gallagher, the principal compliance attorney at Robinhood Markets, spoke about his organization’s experience at the most recent House Agriculture Committee hearing. Gallagher stated that the SEC gave no guidance despite their attempts to register as a special-purpose broker for digital assets. He said that despite the SEC staff’s apparent willingness to assist, the process abruptly came to an end with no discernible results.
Coinbase, whose chief attorney recently appeared before the House Agriculture Committee, has expressed similar frustrations. Chief legal officer of Coinbase, Paul Grewal, voiced dissatisfaction with the SEC’s response to their registration efforts. He stated, “When Coinbase has attempted to do just that, to talk about how we could register as a broker-dealer or an [alternative trading system] or even as a [national securities exchange] after months and months of discussion, we’re simply dismissed with no response or any counter proposal or ideas coming back from the SEC.”
A major bone of contention between companies like Robinhood and the SEC has been the lack of registration and disclosure from token issuers. Gallagher emphasized that his business lacked the tools necessary to make the SEC’s expectations of outside issuers stick. Senator Cynthia Lummis has drawn attention to this compliance conflict by using Twitter to promote her cryptocurrency bill and criticize the SEC for failing to provide a clear registration pathway for digital asset exchanges.
The Financial Industry Regulatory Authority (FINRA) has granted several approvals for digital-assets broker-dealers, despite the SEC’s continued tough stance. Although the definition of this asset class is still developing, organizations like Prometheum Ember Capital LLC, Bosonic Securities, and OTC Markets Group have gained official authority to trade cryptocurrency securities. However, creating a fully compliant business model remains a difficult task for many crypto businesses.
SEC Chair Gensler’s latest remarks show rising cynicism toward the sector as he implies that the U.S. may not need continued development of digital currencies. He delivers a warning that the industry might experience a collapse equivalent to a house of cards if compliance issues are not addressed.
However, it is up to the courts to decide how to resolve this compliance disagreement. Brian Armstrong, the CEO of Coinbase, understands the seriousness of the situation and the likelihood of legal disputes. In a CNBC interview, Armstrong stated, “We have to go to court and really see, otherwise this industry is just not going to exist in the United States.”