Gary Gensler Stands Astride History Yelling Stop

We are told that the powers that be in Washington, D.C., are worried about matters cryptocurrent. Most especially, there is concern over the purveyors of fake money’s evolution into a new brand of shadow bank, and all of the risks inherent in their adoption as such, both to their users and the financial system as a whole. Well, Gary Gensler—because of course it would be Gary Gensler—is doing something about it.

The cryptocurrency exchange and services firm received a Wells notice from the SEC last Wednesday saying the regulator intends to sue Coinbase over the product, called Coinbase Lend…. The product in question is billed as allowing users to earn a 4% annual percentage yield on a so-called stablecoin (USD Coin) by allowing Coinbase to lend those funds to verified borrowers.

At issue is not the fact that Coinbase seems very bad at everything it does other than raising money, nor the essentially criminal nature of stablecoins, but an old classic: the great semantic debate about what a cryptocurrency is. For Gensler, as usual, is not satisfied by the decisions made by his and his colleagues’ immediate predecessors.

[Coinbase CEO Brian] Armstrong said when the company initially reached out to the SEC for a briefing ahead of the launch, the regulator responded by saying the Lend feature is a security.

Armstrong, you may remember, is really not Gensler’s kind of guy in spite of their shared interest in blockchainery. And possibly as a result, Gensler is not particularly interested in Armstrong’s opinion on the matter.

The company’s chief legal officer, Paul Grewal, indicated in the post that the company was caught off guard by the threat considering its efforts to engage with the regulatory agency for the last six months. CEO Brian Armstrong said in a series of tweets that when he traveled to Washington, D.C. in May, the SEC “refused” to meet with him…. Armstrong said when the company initially reached out to the SEC for a briefing ahead of the launch, the regulator responded by saying the Lend feature is a security. When the company asked the SEC to help it understand their view, the agency responded with a number of demands, with which Coinbase complied, according to Armstrong.

Well, Gensler may not have much interest in an exchange of views with his fellow follicly-challenged financier, but—surprise, surprise—Armstrong’s gonna give his, anyway.

“We’re committed to following the law. Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that,” Armstrong said in the tweets.

Be careful what you wish for, Brian. Anyway, Coinbase shares were off 3.6% on the news, and possibly not just that news.

The largest cryptocurrency by market value fell 1.3% to settle at $46,154.44 apiece, according to 5 p.m. ET data from CoinDesk. It briefly dropped 17% over the course of a few minutes Tuesday and ended the day down about 10%.... During the latest bout of volatility, bitcoin has lost more than $100 billion in market value since Sunday. Other cryptocurrencies have also taken a hit. Ether has lost roughly $56 billion, and Cardano’s ada has shed more than $16 billion.

Coinbase shares fall after it reveals SEC plans to sue over interest-earning product [CNBC]
Crypto’s Rapid Move Into Banking Elicits Alarm in Washington [NYT]
The New ‘Shadow’ Banks [DealBook]
Bitcoin Steadies After Flash Crash [WSJ]
Digital Currencies Pave Way for Deeply Negative Interest Rates [WSJ]

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