Coinbase vs SEC

2023年6月16日

This idea will form the basis for my main Crypto market idea, along with my latest idea about Grayscale that I just shared. Again, this is an idea I shared as a Twitter thread, and it's something I've been talking about for a while but had forgotten to share on Tradingview.

Coinbase is facing several lawsuits and issues, but the main one now is its battle against the SEC on whether some of its products involve or are securities themselves. In my opinion, Coinbase has a chance of winning against the SEC for several reasons:

1) The SEC reviewed and approved Coinbase's Form S-1 registration statement during its IPO process and approved its business model. How can the SEC go back and claim that Coinbase violated securities laws if, two years ago saw no violation?

Approving a Form S-1 registration doesn't imply an endorsement of the issuer's business legality. Yet, how could the SEC approve such a form without requiring disclosure of potential violations if they believed Coinbase was acting unlawfully?

2) Coinbase took two significant to soften the blow of the SEC lawsuit potentially. Firstly, it publicly responded to a "Wells Notice" the SEC served in late March. A Wells Notice is a letter the SEC sends to people or firms when it plans to bring an enforcement action against them. In its response to the Wells Notice, Coinbase outlined several areas of SEC focus, such as operating an unregistered exchange, clearing agency, and broker, as well as its wallet offering and staking activities. Coinbase made robust arguments against the SEC's positions for each point.

Secondly, Coinbase sued the SEC in a U.S. federal court on a "narrow" administrative matter to highlight the issues it asserts are negatively impacting U.S. residents and their access to and use of cryptocurrencies. The lawsuit asked the court to compel the SEC to respond to a rule-making petition that Coinbase filed the previous year. This petition addressed several issues raised by Coinbase. The lawsuit argues that the SEC violates the Administrative Procedure Act by not responding within a reasonable timeframe.

To be clear, I think most of their coins and services are securities, but the SEC hasn't provided a clear framework and is 'regulating' through enforcement. It's clear the SEC, and many regulators globally, have failed to protect investors. We've seen very few scammers get convicted, and that's a problem, as it has been damaging crypto for a long time.

Here I am arguing why Coinbase could win these cases, which, unfortunately, will damage the crypto industry even further. In my opinion, many who issued securities or created scams have to pay for their crimes. However, I don't think exchanges should be forced to pay hefty fines for it. Of course, they should register with the SEC and comply with regulations, but I think it's unfair to sue exchanges when the SEC hasn't provided a clear framework or way for them to register with it.

Price action
COIN gapped down on the news that the SEC sued it, but that was mostly priced in already. We already knew that the SEC considered most of these coins/tokens securities and that they planned to sue Coinbase. Most of the stock's supply is held by ARKK, which has a massive bet on Coinbase, which now seems to be the custodian for ETF Blackrock filed for.

The stock bottomed immediately on the dip and has already filled the gap. It's now showing signs of strength and will probably continue much higher from here. The stock is down 90%, and there are very few gaps or double/triple bottoms lower to be tested/swept. Most of the untapped liquidity is higher, so it's natural for the market to want to go higher from here.

In my next idea, I will explain even further why I think the SEC is cornered and why crypto could go higher. Stay tuned!