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Coinbase launches plan for special crypto regulator


WASHINGTON — America’s largest cryptocurrency exchange wants Congress to stop the Securities and Exchange Commission from overseeing the nascent industry and instead create a special regulator for digital assets, according to a master plan revised by the Wall Street Journal .

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Global Inc., which has been feuding with US regulators in recent months, plans to publicly release a document containing proposals for crypto regulation. He says crypto market participants face uncertainty about which federal agencies should oversee particular assets.

Coinbase’s push comes amid a larger clash between the company and SEC Chairman Gary Gensler, which has become the biggest headache for cryptocurrency companies in recent months. He says many crypto exchanges trade coins that do not comply with investor protection laws and have discouraged lawmakers from setting up a separate regulator.

Coinbase said in a blog post that its proposal incorporated feedback from policymakers and took into account the unique qualities and value of crypto.

“We understand that high-level proposals don’t become law overnight, and neither should they,” writes Faryar Shirzad, director of policy at Coinbase. “But what they can do is move the debate forward in a way that is useful to everyone, including members of Congress who are increasingly focusing on this area.”

Speaking at a congressional hearing last week, Gensler said: “I would say a caveat: if Congress were to take something out of securities law, it could also undermine 90 years of economic success and undermine the current 7,000 issuers. which would say, “Well, wait a minute, there’s regulatory arbitrage.”

Coinbase argues for the opposite approach in its policy document. He says digital assets should have a designated regulator, instead of facing the threat of regulation from multiple agencies like the SEC or the Commodity Futures Trading Commission.

“Laws drafted in the 1930s to facilitate effective oversight of our financial markets could not envision this technological revolution,” Coinbase wrote in its article, referring to the era of legislation that created the SEC. “Congress should recognize in law that all digital assets, including digitally native versions of traditional financial assets, should be subject to a new regulatory regime. “

Coinbase’s speech comes as the Biden administration ramps up surveillance of crypto assets, including coins that are pegged to the US dollar. Coinbase itself has argued with the SEC, which says many digital assets are securities that should be covered by investor protection laws.

In September, Coinbase chief executive Brian Armstrong wrote in a series of Twitter messages that the SEC had threatened to take coercive action against an unregulated crypto loan program the company wanted to launch.

Mr. Armstrong said the SEC’s reluctance to the product amounted to “behind-the-scenes intimidation tactics.” Coinbase said the agency would not specify why the program is eligible for regulation. In a longer blog post, Coinbase revealed that the SEC views the product as security and cited two Supreme Court rulings that define the characteristics of debt and equity securities.

After initially saying it could take the SEC to court over the product, Coinbase decided not to offer it.

A bitcoin mining facility in upstate New York uses electricity from a local hydroelectric plant powered by the Niagara River. The company is one of a group of miners who are trying to make the industry more sustainable, both environmentally and financially. Illustration: Alex Kuzoian / WSJ

Coinbase has been accused of misconduct by other regulators. In March, it paid $ 6.5 million to settle allegations by the CFTC that it reported misleading information about its trading volumes. Coinbase said at the time that the behavior did not harm customers and that it cooperated with the CFTC’s investigation.

The company’s policy plan says that a single regulator would eliminate the need for piecemeal oversight by a multitude of federal and state agencies that crypto companies also have to contend with. A private industry-funded entity – overseen by the autonomous federal regulator – is said to be monitoring exchanges and resellers for signs of manipulation or fraud, the Coinbase document says.

It’s unclear how Coinbase plans to generate support for a law that would regulate cryptocurrencies separately from other assets. Many Democrats in Congress, including Senators Elizabeth Warren (D., Mass.) And Sherrod Brown (D., Ohio), are skeptical of the industry.

“I think it’s naive,” said Patrick McCarty, an assistant professor of law at Georgetown University who teaches cryptocurrency classes, of Coinbase’s proposal. “But I think they see that the regulations are coming … They are trying to be part of the discussion.”

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Write to Paul Kiernan at paul.kiernan@wsj.com and Dave Michaels at dave.michaels@wsj.com

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