Coinbase has called on the US Office of Government Ethics (OGE) to rescind a rule prohibiting Securities and Exchange Commission (SEC) staff from holding cryptocurrency. According to Coinbase’s chief legal officer, Paul Grewal, this restriction hinders the SEC’s ability to develop a comprehensive understanding of crypto and formulate effective regulatory frameworks.
In open letters addressed to OGE acting director Jamieson Greer and newly appointed SEC Chair Paul Atkins, Grewal emphasized the importance of using crypto to regulate it effectively. “To regulate technology, you need to understand it. To understand technology, you need to use it,” Grewal stated in his letter to Greer. He further argued that allowing SEC staff to hold crypto is essential for developing the necessary knowledge to propose and adopt workable regulatory frameworks for digital securities activity.
Background on the Current Rule
The OGE issued Legal Advisory 22-04 on July 4, 2022, which prohibits SEC staff from buying, selling, or otherwise using crypto and stablecoins because they are not considered “publicly traded securities” and do not qualify for an exception, unlike stocks. This advisory has created a significant barrier for SEC staff, particularly those involved in the Crypto Task Force, who are tasked with creating a regulatory framework for crypto.
Call for Action
Grewal suggested that the SEC should take independent action by issuing waivers to members of the Crypto Task Force and other relevant staff. “Issuing waivers… would be consistent with measures already taken in commensurate advisory situations,” he noted. Such waivers would enable these staff members to use crypto and evaluate the underlying digital asset technology, thereby enhancing their understanding and ability to regulate it effectively.
Recent Developments in Crypto Regulation
The issue has gained momentum following the directive by US President Donald Trump for the SEC and other agencies to submit recommendations for crypto regulations within approximately 90 days. Grewal pointed out that SEC staff are still unable to use the technology they are making recommendations on, highlighting the urgency of the situation.
The regulatory landscape has seen significant shifts recently. Former SEC Chair Gary Gensler, known for his stringent stance on crypto regulation, resigned on Jan. 20 after leading numerous regulatory actions against crypto firms. Following his departure, the SEC opted out of several lawsuits against crypto firms, including Coinbase, and has indicated plans to drop its enforcement against blockchain firm Dragonchain.
As the regulatory environment continues to evolve, Coinbase’s call for the removal of the ban on SEC staff holding crypto underscores the complexities and challenges in creating effective crypto regulations. By allowing staff to engage with crypto directly, the SEC could develop more informed and practical regulatory frameworks.
