The prominent cryptocurrency exchange Coinbase is under investigation by the Securities and Exchange Commission, with regulators now looking into whether cryptocurrencies should've been registered as securities, Bloomberg reports.
If confirmed, the investigation could mark a watershed moment in the regulation of crypto. If the SEC does deem them as securities, the crypto landscape in the country could soon look drastically different, with exchanges potentially becoming liable for fraud.
According to Bloomberg, the probe predates the regulator suing a former Coinbase manager last week for alleged insider trading.
Coinbase leadership, faced with an existential threat, is trying to get ahead of the problem.
"I’m happy to say it again and again: we are confident that our rigorous diligence process — a process the SEC has already reviewed — keeps securities off our platform," Coinbase's chief legal officer Paul Grewal tweeted, "and we look forward to engaging with the SEC on the matter."
Crypto markets are already feeling the hurt, with the values of mainstream crypto like Bitcoin and Ethereum plummeting over the last couple of months, wiping out hundreds of billions of dollars in market value.
The skirmish could lead to an ugly, drawn out fight. Last week, the SEC argued that nine cryptos were securities — seven of which are listed on Coinbase — as part of the insider trading case against the former Coinbase manager.
All these allegations aren't sitting well with Coinbase's leadership.
"Coinbase does not list securities," Grewal pushed back in a Thursday blog post. "End of story."
"The SEC’s charges put a spotlight on an important problem: the US doesn’t have a clear or workable regulatory framework for digital asset securities," Grewal wrote. "And instead of crafting tailored rules in an inclusive and transparent way, the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities."
Regardless, the investigation is bound to be a major headache for the company. Coinbase's stock has already lost almost three quarters of its value in 2022 so far, Bloomberg notes.
But the investigation could also set an important precedent for many other exchanges out there as well.
It remains to be seen if the SEC's investigation into Coinbase will end up setting the groundwork for future crypto regulation — but regulators are, nonetheless, sending a clear message: the "Wild West" era of cryptocurrencies could soon be over.
READ MORE: Coinbase Faces SEC Probe on Crypto Listings; Shares Tumble [Bloomberg]
More on Coinbase: Coinbase Manager Arrested as He Tries to Flee the Country