The Securities and Exchange Commission has threatened Coinbase, the largest U.S. cryptocurrency exchange, with a lawsuit if it moves forward with a program allowing investors in digital assets to earn interest on their holdings.
Coinbase CEO Brian Armstrong said the agency told the company the product it is planning to offer is a type of security that should be registered with the government.
Armstrong disputed that view, calling the SEC’s move "sketchy," but the company is delaying the launch of the program until at least October.
Coinbase has pitched its proposed product to customers as a way for them to get paid for investments in USD Coin, a cryptocurrency pegged to the value of the dollar. Participants could earn a 4% annual yield by lending the asset to other crypto traders.
Some industry analysts cast the agency’s move against Coinbase’s lending program as part of a broader campaign. "Coinbase just happens to be the entity in the spotlight right now," Jaret Seiberg, a Cowen Washington Research Group analyst, wrote in a note to clients. "We expect the SEC is targeting other crypto exchanges that are offering loan products."
The industry is facing stricter oversight from Biden administration-appointed regulators. Treasury Secretary Janet Yellen has expressed reservations about some claims advanced by the crypto faithful and SEC chair Gary Gensler called on Congress to give regulators greater authority to police crypto activity. Wild price gyrations, high-profile ransomware attacks and influencer-driven speculative trading have also drawn skepticism to the world of crypto.
"Cryptocurrency is 95% fraud, hype, noise and confusion," Neel Kashkari, president of the Minneapolis Federal Reserve, said last month.