Despite the recent court win for Ripple, US-based cryptocurrency exchange Coinbase still has to deal with regulatory pressure from the Securities and Exchange Commission (SEC). The “Earn” program provided by Coinbase is now considered susceptible to possible regulatory action, according to a study by investment company Berenberg Capital, since the staking incentives given via the program could be subject to securities laws.
Concerns raised in the paper include the possibility that Coinbase Earn, a securitized product that pays retail consumers for staking, would be classified as a security under the relevant regulatory framework. Such regulatory challenges run the risk of derailing the recent uptrend in the price of Coinbase’s shares (ticker code: COIN), which has surged significantly from a low of $46.43 on June 6 to $105.55, or a 124% rise.
After Ripple’s recent legal triumph, in which a US District Court determined that the XRP coin is not intrinsically a security for regulatory reasons, the report’s warning could come as a surprise. However, the decision also made clear that in certain situations, such as staking, the token may be considered a security. As staking entails locking up tokens to get payments on a regular basis, similar to receiving dividends from conventional equities, this poses issues for Coinbase Earn.
Since doing so would turn the exchange into an unregistered securities exchange, similar to what the SEC has accused Binance of, it is typically against the law for cryptocurrency exchanges in the US to provide tokens for trade if they are considered securities.US of.
Coinbase and other US-based exchanges including Kraken, Gemini, and Crypto.com have already stated their plans to relist XRP for trade after it was delisted in early 2021 due to regulatory uncertainty, despite the confusing signals from the decision. This is in spite of the contradictory signals from the judgement.
Following a prior statement in June, when the company labeled COIN stock “uninvestable” in the near term due to the SEC case, Berenberg has issued a new caution about Coinbase. If the ongoing litigation has a negative conclusion, Coinbase’s primary operation in the United States might be shut down.
As things develop, Coinbase confronts a difficult regulatory environment, and how the SEC action turns out might have a big impact on how the exchange runs in the US. To remain a top crypto exchange in the very cutthroat industry, the business will need to carefully handle these regulatory issues.
