Crypto Currents: Coinbase receives Wells Notice from SEC on Lend program

SEC threatens to sue Coinbase over Lend product as Mastercard to acquire CipherTrace
As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week’s top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.

COINBASE RECEIVES WELLS NOTICE FROM SEC: Paul Grewal, Chief Legal Officer at Coinbase (COIN), said in a Tuesday blog post that the company had received a Wells notice from the Securities and Exchange Commission about its planned Coinbase Lend program. “As surprised as we were at the SEC’s threat to sue without ever telling us why, we want to be transparent with you about the course of events leading up to it,” he said. “Coinbase has been proactively engaging with the SEC about Lend for nearly six months…Specifically for Lend, we’re seeking to allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY on USD Coin… After our initial meeting, we answered all of the SEC’s questions in writing and then again in person. But we didn’t get much of a response. The SEC told us they consider Lend to involve a security, but wouldn’t say why or how they’d reached that conclusion… They also asked for the name and contact information of every single person on our Lend waitlist. We have not agreed to provide that because we take a very cautious approach to requests for customers’ personal information. We also don’t believe it is relevant to any particular questions the SEC might have about Lend involving a security, especially when the SEC won’t share any of those questions with us. The net result of all this is that we will not be launching Lend until at least October.”

Following the blog post, Coinbase CEO Brian Armstrong said in a Tuesday tweet, “Some really sketchy behavior coming out of the SEC recently…Millions of crypto holders have been earning yield on their assets over the last few years. It makes sense, if you want to lend out your funds, you can earn a return. Everyone seems happy…If we end up in court we may finally get the regulatory clarity the SEC refuses to provide. But regulation by litigation should be the last resort for the SEC, not the first.”

Meanwhile on Wednesday, Cowen analyst Jaret Seiberg said Coinbase’s disclosure that the SEC is investigating its plan to let costumers loan stable coins in exchange for interest payments is a broader crackdown on crypto lending. The analyst thinks the SEC will stick to its view that these transactions result in securities that must be registered and thinks crypto will be regulated the same as the product it tries to replace.

MASTERCARD TO ACQUIRE CIPHERTRACE: MasterCard (MA) announced Thursday an agreement to acquire CipherTrace, a cryptocurrency intelligence company with insight into more than 900 cryptocurrencies. The acquisition is part of Mastercard’s strategy in the digital assets space to help provide customers, merchants and businesses with more choice in how they move digital value. Terms of the agreement were not disclosed, and the transaction is anticipated to close before the end of the year, pending certain conditions.
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