COIN stock slid on Wednesday after Coinbase (COIN) said the SEC had threatened to sue cryptocurrency exchange if it launched a lending program allowing users to earn interest on some crypto assets — a move its CEO called “really sketchy behavior” with little explanation behind it.
Meanwhile, the price of Bitcoin fell modestly Wednesday after tumbling from multimonth highs on Tuesday. Other Bitcoin stocks such as Marathon Digital Holdings (MARA) also slipped.
Coinbase, in a filing late Tuesday, said that on Sept. 1, it received a notice from the SEC’s staff saying that the regulator told the crypto exchange it made a “preliminary determination” to recommend enforcement action relating to Coinbase’s Lend program. Coinbase introduced that program on June 29. But it hasn’t yet been launched.
In a blog post on June 29, Coinbase said users could pre-enroll to earn interest on USD Coin, or USDC, a so-called stablecoin whose value is pegged to another asset, like traditional currency. Under the program, Coinbase users could lend the USDC they have on the platform and earn a 4% annual percentage yield.
Coinbase said it had been talking with the SEC for nearly six months about the Lend program, Paul Grewal, Coinbase’s chief legal officer said in a blog post on Tuesday. CEO Brian Armstrong, in a tweet thread, said that other crypto companies have been offering similar programs.
“Millions of crypto holders have been earning yield on their assets over the last few years,” Armstrong said. “It makes sense, if you want to lend out your funds, you can earn a return.”
“A bunch of great companies in crypto have been offering versions of this for years,” he continued.
COIN Stock, Bitcoin Stocks
The price of Bitcoin fell 2% vs. 24 hours earlier to $46,100. Bitcoin plunged from nearly $53,000 on Monday to below $43,000 Tuesday morning, rebounding to around $46,000-$47,000 for most of the day.
Coinbase faces the potential legal action as regulators around the world grow more concerned about crypto-related activity.
The company, meanwhile, is also trying to expand the crypto products it offers to users. Last month, Coinbase forecast lower trading volume and active users for the third quarter, following a drop in crypto prices and trading activity.
Armstrong said the SEC told Coinbase that its lending feature was “a security,” without explaining why. He then alleged that the agency subpoenaed records from Coinbase, and demanded testimony from company employees.
He also alleged that the SEC told Coinbase it would sue if the company launched the lending program. But he said the agency gave “zero explanation as to why.”
“Look … we’re committed to following the law,” he said. “Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that (it’s nice if you actually enforce it evenly across the industry equally btw).”
“But in this case they are refusing to offer any opinion in writing to the industry on what should be allowed and why, and instead are engaging in intimidation tactics behind closed doors,” Armstrong said. “Whatever their theory is here, it feels like a reach/land grab vs other regulators.”
Armstrong said that in May, he traveled to Washington, D.C., to meet with any regulator that he could. He said the SEC “was the only regulator that refused to meet with me, saying ‘we’re not meeting with any crypto companies.'”
The SEC was not immediately available for comment.
Coinbase stock has an 80 Composite Rating. Its EPS Rating is 74.
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