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Coinbase Faces Potential Enforcement Action from SEC, Stock Plummets in After-Hours Trading


Coinbase, the prominent American crypto company, received a notice from the Securities and Exchange Commission (SEC), which warned of a potential enforcement action against the company, alleging violations of federal securities law. After the news, Coinbase’s shares fell sharply in after-hours trading. The SEC’s legal action against Tron founder Justin Sun for possible securities violations is another indication that crypto regulation is a hot topic worldwide.

Coinbase’s CEO, Brian Armstrong, expressed confidence in his company, stating that Coinbase is “right on the law, confident in the facts,” and looks forward to the opportunity to get before a court. Armstrong cited his company’s SEC review during its IPO process, stating that its S-1 filing included “57 references to staking.” Staking is a process that allows crypto owners to lock some of their digital assets, often for a return. The SEC has previously taken action against crypto exchanges, including Kraken, which was fined $30 million and stopped its staking-as-a-service offering, according to the SEC.

The Coinbase Wells notice, and the company’s subsequent comments, suggest that these events could lead to regulatory clarity on when staking becomes an activity that falls under regular securities law, and when it is allowed without additional legal oversight.

Crypto regulation is a pressing issue worldwide due to the significant capital flowing through the decentralized economic landscape, the need for customer protection, and the newness of blockchain-based assets and activity, which has led to the development of new government rules on investing. At the time of writing, after losing 8.2% of its value during regular trading, Coinbase’s shares had dropped another 13.8% in after-hours trading.

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