Coinbase calls for the creation of a dedicated crypto regulator

Coinbase has called for the creation of a single dedicated body to regulate digital assets, arguing that current oversight is too fragmented and that centuries-old U.S. securities laws are unsuitable for today's cryptocurrency markets.

In a policy document shared with Congress, the largest U.S. cryptocurrency exchange called on lawmakers to separate oversight of digital asset markets from other financial markets as it goes on the offensive following a recent dispute with the Securities and Exchange Commission on Capitol Hill.

“To avoid fragmented and inconsistent oversight of these unique and simultaneous innovations, responsibility for digital asset markets should be placed under 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 (SRO) to support oversight under this new digital asset regulatory regime that mirrors traditional financial markets.

The proposals come as tensions between Coinbase and the SEC have escalated in recent months. SEC Chairman 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 "sketchy" and opaque after it threatened to sue the company if it launched its Lend product, which would have paid interest on staked cryptocurrencies without registering with the regulator. Coinbase later shelved the plans.

In its proposal Thursday, Coinbase argued that securities laws established in the 1930s are struggling to adapt to current digital markets and, as a result, are stifling risk and driving crypto entrepreneurs abroad. The document, seen by the Financial Times, was first reported by the Wall Street Journal.

While Gensler has said that many crypto products could be defined as securities, he has not issued further guidance because 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.

Part of the regulatory debate revolves around whether digital products are “investment contracts” and therefore federal securities. Under the so-called Howey test, the Supreme Court has held that an investment contract exists when “a person invests his money in a joint venture and expects profits solely from the efforts of the promoter or a third party.” .

“While the Howey test plays an important role in defining a security, its application to digital assets has even 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.

“Any holder of a digital asset can verify the functionality and governance structure of the asset for themselves,” it said. “Applying public company disclosure requirements would likely mislead the public as to what is actually material information about a digital asset.”

The SEC did not immediately respond to requests for comment.