Coinbase has called for the creation of a single dedicated body to regulate digital assets, arguing that current oversight is too fragmented and that the age-old US securities laws are not appropriate for today’s cryptocurrency markets.
In a policy paper 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 in Capitol Hill after a recent arguing with the Securities and Exchange Commission.
“To avoid fragmented and inconsistent regulatory oversight of these unique and contemporaneous innovations, responsibility for digital asset markets must be assigned to a single federal regulator,” Coinbase said, noting that the SEC, the Commodity Futures Trading Commission and certain state regimes all oversee parts of the crypto industry.
The company also proposed creating an additional self-regulatory organization, or SRO, to support oversight under this new digital asset regulatory regime, which mirrors 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 may be securities,” a characterization the company disputes.
Chief executive Brian Armstrong also accused the regulator in September of being “summary” and opaque after it threatened to sue the company if it launched its Lend product, which would have paid interest on cryptocurrencies deployed, without joining. to register with the supervisor. Coinbase later shelved the plans.
In its proposal Thursday, Coinbase argued that securities laws enacted in the 1930s struggle to fit into today’s digital markets, and as a result risk suffocating innovation and driving crypto entrepreneurs abroad. to conduct. The document, seen by the The Washington City Times, was first reported by The Wall Street Journal.
While Gensler has said that many crypto products can be defined as securities, he has not provided further guidance as the existing rules are sufficiently clear. 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 are therefore considered securities under federal law. In accordance with what is known as the Howey test, the Supreme Court has ruled that an investment contract exists when “a person invests their money in a joint venture and is led to expect only a profit from the efforts of the promoter or a third party” .
“While the Howey test plays an important role in defining what constitutes a security, its application to digital assets has actually left the SEC unclear and inconsistent,” Coinbase said in its proposal.
The company also argued that the decentralized and open-source nature of digital assets means that current disclosure requirements in securities laws are not fit for purpose.
“Each digital asset holder can independently investigate the asset’s functionality and governance structure,” it said. “Applying the disclosure requirements of public companies would likely mislead the public about what actually constitutes material information about a digital asset.”
The SEC did not immediately respond to requests for comment.