What the SEC’s lawsuit against Coinbase means for the exchange’s pivotal role in spot Bitcoin ETFs

With all the hype surrounding the possible approval of America’s first spot Bitcoin exchange-traded fund, another lingering concern remains. This is a legal battle between Coinbase and the Securities and Exchange Commission.

If the SEC decides to approve a spot Bitcoin ETF, some analyst Coinbase is expected to play a significant role by providing trading and custody services to major financial companies such as BlackRock, Franklin Templeton, and Grayscale Investments. We recently hired a new employee. management You will lead the management department.

The development comes as the exchange has been embroiled in a separate legal battle with the SEC over the past year after accusing it of operating as an unregistered exchange, broker and clearinghouse. Coinbase refuted these claims, asserting that the incident was as follows: fired It accuses regulators of taking “regulation by enforcement approach.”

The legal battle continues

SEC Chairman Gary Gensler has repeatedly said that cryptocurrency exchanges must register with his agency and that investors must be protected in the same way as traditional regulated exchanges. Coinbase called for new digital asset regulations.

Ashley Ebersole, general counsel at 0x Labs and a former SEC lawyer, said Coinbase’s ongoing legal battle with the SEC does not prevent it from performing any management or market surveillance functions.

“If the SEC wins the legal battle and a court order concludes that Coinbase violated the law, things could get complicated, especially as it relates to management roles,” Ebersole said. “But the outcome of SEC v. Coinbase still remains a very open question.”

Nate Geraci, president of investment advisor The ETF Store, said Coinbase is in a unique position given its ongoing litigation with the SEC and how it’s progressing. “The company will be closely intertwined with the spot Bitcoin ETF.”

But Coinbase’s role as a custodian and its willingness to enter into shared oversight agreements with major stock exchanges is something the SEC can view positively, Geraci said.

“The SEC’s ultimate goal is to bring regulatory oversight to cryptocurrency exchanges,” Geraci said. “Coinbase’s key role in the spot Bitcoin ETF puts the SEC one step closer to satisfying that desire.” “There is,” he said.

The SEC named Coinbase, Inc. and Coinbase Global, Inc. in a lawsuit filed in June. The latter is the parent company of Coinbase Custody Trust Company, LLC., the namesake custodian of many spot Bitcoin ETF applications not named in the lawsuit.

“The services provided by the CCTC are not at issue in the SEC case,” said a person familiar with the situation. The lawsuit will not affect Coinbase’s custody role in spot Bitcoin ETFs, a familiar source continued, noting that the SEC has said Bitcoin is not a security.

tension rises

SEC Chairman Gensler Ahead of Potential Approval for Spot Bitcoin ETF warned Investors posted on X on Monday morning about the risks associated with investing in cryptocurrency.

“Investing in cryptocurrency assets can be very risky and often subject to high volatility.” wrote. “Many major platforms and cryptocurrency assets have become insolvent or have lost value. Investments in cryptocurrency assets continue to be subject to significant risk.”

Public Citizen, a consumer advocacy group critical of cryptocurrencies, opposed Grayscale Investment’s application for a spot Bitcoin ETF in a December letter to the SEC.

Edited at 5:05 PM ET and added missing words to more accurately reflect Coinbase’s role in a potential future spot Bitcoin ETF.

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