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Coinbase Urges U.S. Regulators to Allow SEC Staff to Engage with Cryptocurrencies
Coinbase, a leading cryptocurrency exchange, has formally requested U.S. regulators to lift the prohibition preventing Securities and Exchange Commission (SEC) staff from buying, selling, or using cryptocurrencies that are not classified as securities. This initiative aims to enhance regulatory effectiveness and foster a deeper understanding of the cryptocurrency industry among regulators.
Current Policy Challenges Effective Oversight
In letters dated April 22, Coinbase Chief Legal Officer Paul Grewal addressed SEC Chair Paul Atkins and the U.S. Office of Government Ethics. He argued that the existing restrictions hinder the SEC’s ability to effectively oversee the fast-evolving cryptocurrency sector. Grewal emphasized that understanding the technology regulators are tasked with monitoring requires firsthand engagement.
The timing of this appeal is critical, as President Trump has recently issued an executive order directing the SEC and other agencies to submit recommendations for advancing American leadership in digital finance within 180 days. With nearly half of this timeframe already passed, Coinbase contends that the prohibition against SEC staff engaging with crypto assets is a significant obstacle.
Coinbase Calls for Policy Updates
Coinbase has specifically urged the Office of Government Ethics to rescind and update Legal Advisory 22-04, which currently prohibits SEC staff from buying, selling, or otherwise using digital assets. According to Grewal, this blanket policy not only limits regulators’ ability to gain practical expertise but also impedes the SEC Crypto Task Force’s efforts to establish regulatory clarity for the industry.
“Understanding technology requires using it. The current prohibition undermines the SEC’s ability to regulate effectively.” — Paul Grewal, Chief Legal Officer, Coinbase
Proposed Solutions to Manage Conflicts of Interest
In his letter to SEC Chair Paul Atkins, Grewal outlined practical solutions to address potential conflicts of interest while allowing SEC staff to engage with cryptocurrencies. These proposals include:
- Issuing waivers to Crypto Task Force members and other staff actively working on cryptocurrency matters.
- Permitting SEC staff to own cryptocurrencies under specific conditions to ensure compliance with ethical guidelines.
- Clarifying that certain cryptocurrency holdings would not have a direct and predictable effect on the value of those assets.
Grewal argues that these measures would align with existing practices in similar advisory situations and ensure that regulators can better understand the technology they are tasked with overseeing. He also noted that most cryptocurrency activity does not involve securities, making the blanket prohibition particularly problematic.
Aligning with Industry Expertise and Oversight
Coinbase’s proposal reflects views expressed by the Office of the Inspector General, which has emphasized the importance of continuous monitoring of market environments and adapting expertise, regulations, and oversight tools. Grewal believes that allowing SEC staff to engage with cryptocurrencies will enhance their ability to regulate effectively and pave the way for a more nuanced approach to crypto regulation.
As the cryptocurrency industry continues to grow and evolve, Coinbase’s call for policy updates highlights the importance of empowering regulators with practical knowledge and tools to navigate this complex sector. By lifting existing restrictions, regulators could gain valuable insights into the technology and contribute to shaping a balanced regulatory framework for the future.
