Coinbase CEO Says SEC Demanded Delisting of All Crypto Except Bitcoin, Which Armstrong Refused

In an interview published Monday by the Financial Times, Coinbase CEO Brian Armstrong described a conversation that, in his telling, left his company with only one real option. While the Securities and Exchange Commission was preparing to sue Coinbase, he said, officials suggested the exchange delist every crypto asset except Bitcoin.

The scale of that request is what Armstrong stressed. Coinbase offers more than 200 tokens. Complying would have meant removing all of them but Bitcoin, the most traded cryptocurrency in the world. According to the FT, it would also have set a precedent leaving most American crypto firms operating illegally unless they registered with the SEC.

Armstrong said he asked how the agency had reached its conclusion. As he recounted it, the SEC told Coinbase it believed every asset other than Bitcoin is a security. Coinbase answered that this was not its reading of the law, and he said the response was that the agency would not explain its reasoning and that Coinbase needed to delist. In his words, delisting everything but Bitcoin, which he said is not what the law says, would have essentially ended the crypto industry in the U.S. That made the decision easy: take it to court and see what a judge says.

The dispute rests on classification. SEC Chair Gary Gensler has made clear he believes most cryptocurrencies are securities, while conceding that Bitcoin is an exception that should be treated as a commodity. The label matters because it determines which regulator has authority: the SEC or the Commodity Futures Trading Commission.

The SEC filed its lawsuit against Coinbase in June. It accused the company of failing to register as a broker, a national securities exchange and a clearing agency. It also alleged that some assets traded on the platform, including Solana, Cardano and Polygon, were unregistered securities. The suit came less than three months after Nasdaq-listed Coinbase disclosed it had received a Wells notice from the agency, a warning that it faced a legal investigation. An SEC spokesperson was not immediately available to Fortune for comment.

Gurbir S. Grewal, director of the SEC's division of enforcement, said in a statement when the suit was filed that firms cannot ignore rules because they dislike them or would prefer different ones, adding that the consequences for the investing public are far too great.

Coinbase is not the only target. Since the collapse of FTX last year, regulators have moved against alleged misconduct in the industry, suing Binance and Coinbase in quick succession last month. Three months before the SEC's Coinbase suit, the CFTC took its own action against Binance and its CEO, Changpeng Zhao, alleging violations of the Commodity Exchange Act and an illegal exchange and a sham compliance program.

The legal pressure lands on a market still recovering from the 2022 selloff known as the Crypto Winter. More than $200 billion was erased from the market in a single day last June, and some experts have predicted the slump could last through 2023 and possibly into 2024. FTX's implosion prompted talk of the end of crypto, and some called it the market's Lehman moment. Bitcoin has recovered somewhat but trades at just over $29,000, well below its all-time high of nearly $69,000.

What happens next is up to the court. Its ruling will go a long way toward deciding whether most tokens are securities under the SEC or commodities under the CFTC.