Coinbase, SEC executives’ fireside chat shows everyone is talking past each other

• Coinbase and SEC executives engaged in a Manhattan-based discussion among lawyers and journalists to discuss crypto presence in the US.
• SEC’s Grewal justifies the agency’s new strategy by blaming Coinbase for disregarding earlier warnings to increase compliance.  
• Coinbase’s Shirzad challenged that the SEC’s current approach contravened its own goal to protect investors.
• While the SEC focuses on interpreting and implementing current laws, Coinbase wants fresh legislation to support contemporary/evolving blockchain.

Coinbase exchange and the US Securities and Exchange Commission (SEC) executives met in a Manhattan gathering attended by lawyers and journalists to discuss the place of cryptocurrencies in the United States.

The event, organized by Rutgers School of Law and the law firm Lowenstein Sandler, saw Faryar Shirzad and Gurbir S. Grewal of the two respective organizations phase off perspectives on “why or whether cryptocurrency should be allowed to exist in the United States at all.”

Also Read: BlackRock joins hand with Coinbase Custody for Bitcoin ETF application, undeterred by SEC vs Coinbase lawsuit

Coinbase vs. SEC on the place of crypto in the US

Coinbase exchange representative offered a rebuttal after SEC Director of Enforcement Gurbir S. Grewal explained his rationale for the agency’s legal suit against the US-based exchange. Grewal described the enforcement suit as the logical climax of a long chain of clear signals that the SEC had sent to the industry since 2017.

According to Grewal, the agency’s change of tactic comes after crypto entities failed to increase compliance over time despite the SEC’s growing effort. Specifically, he says Coinbase disregarded previously repeated warnings to work incrementally toward compliance. The change of tact was a judgment call based on capacity limitations that the agency would henceforth pursue exchanges as opposed to individual enforcement actions against violating token users

I have less than 1,300 people. Every year I have 700 recommendations we bring to the commission. We can’t be everywhere all at once … When we’re evaluating cases to bring, we have to make judgment calls.

Regarding decentralized exchange (DEX) regulation, Grewal says that the SEC will no longer admit “decentralization” as an excuse as known individual entrepreneurs are at the center of the projects. Notably, this assertion echoes sentiments by the agency’s chair Gary Gensler earlier when he took office.

Sending a warning to YouTubers, Grewal said that the SEC was keen on crypto influencers on social media trying to take advantage of the innocent public. Specifically, the agency was on the lookout for those exploiting minority groups where people are excluded from traditional fiancé with the promise of financial inclusion.

That’s offensive to me … I find that conduct to be some of the most egregious conduct we’ve dealt with.

Coinbase official claps back

Coinbase was represented by Chief Policy Officer Faryar Shirzad, who boasts a professional history with Goldman Sachs as head of government affairs during the George W. Bush administration.

Hedging his speculation that the SEC was stepping on an ongoing legislative process, Shirzad said that basing crypto on existing law would be detrimental to the country’s competitiveness and innovation as the industry has actively struggled to show that existing law does not work for many blockchain-based digital assets.

According to Shirzad, the SEC’s approach threatens other industries beyond crypto because, with blockchain as the internet’s value layer, projects like JPMorgan, which is also blockchain-based, would be affected.

Further, the Coinbase CPO said the agency was shooting itself in the foot as its current approach contravened its goal to protect investors. In Shirzad’s words:

…To the extent it becomes part of public policy to push exchanges offshore, you’re pushing that nexus between policy and US law out of the perimeter of US law. That’s a big deal. This has to be a matter of national strategy.

Fighting on different battlegrounds

The confrontations indicate two parties on completely different wavelengths, such that while the SEC is more focused on how the law is written and interpreted, Coinbase wants the industry to enjoy a future that is not limited by any past or existing laws. New ones should be forged.

Also Read: Coinbase CLO challenges SEC’s congressional action on DEXes registration