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The US Securities and Exchange Commission is reportedly looking into whether crypto exchange Coinbase allowed its US-based users to trade unregistered securities, Bloomberg reported Monday.
Coinbase, one of the largest exchanges in the world, allows users to trade more than 150 tokens on its platform. The tokens are not deemed as securities, but if they were, the exchange would have to register with the SEC, the regulator has warned.
The investigation is unrelated to the insider trading case where seven cryptocurrencies on the platform were allegedly linked to Coinbase’s product manager Ishan Wahi. The SEC has said that nine of the dozen digital tokens involved in the insider trading case were securities, including seven that are listed on the exchange.
Questions around what constitutes a security or a commodity in crypto — as well as which regulator has jurisdiction (SEC or CFTC) — continue to trouble industry participants and providers who say they require clearer guidelines to operate.
SEC Chair Gary Gensler previously said he believes Coinbase should be registered as a national securities exchange. Coinbase has denied its affiliation, claiming it “does not list securities. End of story,” according to a blog post last week.
Digital assets will be considered securities if the token can help investors put money into funding a company with the intention of profiting from the employees that work at the organization, according to definitions laid out in the Howey Test.
The SEC has not specified which coins are securities and it is up to the discretion of the exchange to decide whether to list them as an asset. Exchanges are currently hesitant to list their offerings as securities because investor protection rules are complicated and incompatible with digital assets.