Skip to content

SEC Lawsuit Rocks Coinbase: Share Prices Plunge Amid Accusations of Regulatory Breaches

A hefty SEC lawsuit against Coinbase causes a sharp drop in share prices, raising serious questions about regulatory compliance in the crypto sphere.

Logos of Coinbase and SEC

Regulatory Storm Hits Coinbase

The cryptocurrency market was plunged as the Securities and Exchange Commission (SEC) slapped Coinbase, a leading cryptocurrency exchange, with a lawsuit, alleging it of breaking U.S. securities rules. Due to the lawsuit, Coinbase's shares (NASDAQ: COIN) experienced a significant tumble in early Tuesday trading.

The Lawsuit's Basis: Merging Functions Without Registration

At the heart of the lawsuit is the SEC's argument that Coinbase had amalgamated three separate roles typically found in traditional securities markets – the functions of brokers, exchanges, and clearing agencies. Despite operating in such a manner, Coinbase, the SEC contends, never registered with the body as a broker, national securities exchange, or clearing agency, thus bypassing the regulatory transparency that Congress had instituted for securities markets.

Coinbase: An Unregistered Broker Since 2019?

The lawsuit further asserts that Coinbase had been functioning as an "unregistered broker" since 2019, at the very least. This allegation carries significant weight, given that the exchange stands accused of raking in billions of dollars by "unlawfully facilitating the buying and selling of crypto asset securities."

SEC's Stance: Blatant Breach of Securities Laws

In a press statement, SEC Chair Gary Gensler explained, "We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions. These functions are distinct in other parts of our securities markets."

Market Reaction: Coinbase Shares Tumble

Following the announcement, Coinbase's shares took a heavy hit, plunging 14.5% in Tuesday's pre-market trading. This drop follows a 9% decline on Monday after the SEC filed a lawsuit against Binance, another major cryptocurrency exchange.

Ripple Effect: Implications for Coinbase's Sales

The legal fracas has not only affected Coinbase's share prices but may also pose a threat to the exchange's sales. Analysts from Mizuho caution that the language employed in the Binance lawsuit could endanger a third of Coinbase's sales.

Bitcoin Unfazed by the Lawsuit

As the legal drama unfolds, Bitcoin, the world's leading cryptocurrency, has remained largely unfazed, with only a minor dip of 0.8% in value noted for the day.