The SEC Is On the Prowl For Crypto

Digital upstarts and securities regulators are playing a cat-and-mouse game

- Elizabeth Fournier and Pat Regnier

By now, people are used to unusual goings-on in cryptocurrency markets. But little could have prepared Wall Street for the spectacle of Sept. 8, when it awoke to find the head of a $50 billion digital-assets exchange bashing a powerful regulator in a 21-tweet tirade. There was Brian Armstrong, chief executive officer of Coinbase Global Inc., accusing the U.S. Securities and Exchange Commission of “sketchy behavior” and “intimidation tactics” after it effectively blocked his company from rolling out a product that would let users earn 4% by lending their tokens. Finance Twitter spectators were agog— surely the leader of a public company knew better than to infuriate an agency with the ability to make or break his industry?

But in the us-against-them world of crypto finance, even securities cops aren’t immune to public expressions of outrage. Armstrong’s tweets were accompanied by a blog post, in which Coinbase disclosed that the SEC had served it with a Wells notice—meaning it may pursue enforcement action— and opened a formal investigation into its proposed lending product. That program, Coinbase Lend, promised above-market interest rates for clients who allowed the company to use their crypto-denominated funds to make loans.