Coinbase asks US court to force SEC to regulate crypto

In Token Issue this week, we look at Coinbase putting the heat on the SEC to firm up regulations, and why the agency isn’t responding. [Read from your browser]( Token Issue Welcome to Token Issue! Delivered every Friday, this free newsletter breaks down the biggest stories in Asia’s crypto scene and beyond. View past issues [here]( or [sign up here]( to receive future newsletters. Written by Scott Shuey Crypto journalist Hi {NAME} Good news everybody, As of Thursday morning, no one has been bankrupted or sued by the US Securities and Exchange Commission (SEC) this week. I'm hoping this isn't the quiet before the storm. For one, we’re now just 13 days away from a [possible default on US debt](. Ratings agency Moody's has put a number to the [probability of a default: 10%.]( The ramifications from a default are hard to predict, but it will [likely lead to]( one of the scariest financial crises since the 2008 recession. The crypto sector is already bracing for impact. USD Coin issuer Circle has [reportedly balanced its reserves]( to include only treasuries that mature no later than May 31. A [Bloomberg investor survey]( showed that Bitcoin, together with gold and US treasuries, are likely to gain traction as safe-haven assets should the default come to pass. Yet Bitcoin market behavior hasn’t quite reflected that. The coin began to tank on May 10, when [White House negotiations to raise the debt ceiling went nowhere](. The token bottomed out on May 13 and has since then inched up just 3% - which really just means that the Bitcoin market still isn’t quite sure how to price in the impact of a debt default. Or, it might have been reacting to regulatory news (more below). Let's get to this week's story before the default happens. -- Scott --------------------------------------------------------------- 👀 ALL EYES ON... What everyone’s talking about. 1️⃣ [Coinbase accuses SEC of not acting fast enough]( The ongoing fight between the SEC and the crypto industry is getting surreal. Coinbase, which was recently issued a [Wells notice]( by the SEC, has asked a federal court for a [writ of mandamus](. If you're not familiar with mandamus - and who the hell is - it's an order from a court telling someone to do their job. While it may sound obscure, it's a powerful tool - if you can get the court to agree. In this case, Coinbase is trying to use the mandamus writ to force the SEC to pass regulations on crypto. Courts don’t grant a mandamus lightly either, and it’s considered a [desperate move](. The SEC responded by saying that regulating crypto is not its job. Specifically, the agency said, “There is no provision in the securities laws mandating that the Commission adopt rules such as those suggested by Coinbase.” Let that sink in. This is the SEC. Its self-proclaimed job is to ["maintain fair, orderly, and efficient markets."]( In addition to that, the US Congress, through the [Administrative Procedure Act]( has made creating regulations part of the SEC’s job. Anyone with half a brain can see that the crypto market is far from orderly, and at this point, with the uncertainty surrounding enforcement action, far from fair - at least from the perspective of the recipients of said enforcement action. The SEC has thus far refused to clarify whether cryptocurrencies in the US are securities, even after it sued crypto companies for the illegal trading of cryptocurrencies that it considers to be securities. And it actually said in its response to Coinbase that the comments of SEC Chairman Gary Gensler - who has been vocal about classifying all cryptocurrencies except Bitcoin as securities - don’t reflect official policy. OK. Whatever. The SEC can legally refuse to issue regulations - unless ordered to by a court through a mandamus writ. But the SEC's response only seems to be fueling the argument that the agency is using enforcement actions as a substitute for rulemaking. That's a problem for the SEC because the US Supreme Court previously ruled that using the courts to regulate could amount to an abuse of discretion. Paul Grewal, Coinbase chief legal officer, responded to this issue [by tweeting]( "The SEC told the court that rulemaking may take years and they're in no rush." That's not entirely accurate, but it's not far from the truth. The SEC did say it was developing rules - which is a good sign - although it gave no timeline. The only real mention of how long this could take comes from previous lawsuits involving other US agencies. How soon the court could rule on the mandamus petition is unclear, but legal pundits generally agree that Coinbase’s request might be too soon. According to the SEC’s response, courts often give agencies three to five years before they consider acting. The agency did acknowledge that 20 years (or not at all) was too long 😑. 2️⃣ [Do Kwon out on bail following possible withdrawal of US$2.8 million]( Do Kwon, the co-founder of Terraform Labs, was released on bail last Friday. Both South Korea and the United States are seeking Kwon's extradition for his role in the US$40 billion collapse of the Terra ecosystem in May 2022. Kwon and former Terraform Labs CFO Han Chang-joon were arrested in March 2023 for allegedly using fake passports in an attempt to travel to the United Arab Emirates. Just days before his release, US$2.8 million in [Luna Classic]( and [Tether]( was reportedly removed from a wallet believed to be owned by Kwon, according to South Korea's [Economist]( and [TV Chosun](. 3️⃣ [Hacked hardware wallets being sold online through "trusted sellers"]( Kaspersky, the Russian cybersecurity firm, reported last week that hacked versions of the Trezor Model T, a popular hardware wallet, were being sold online. The company warned that trusted sellers on popular classifieds websites are selling these wallets. Kaspersky admitted that when examining one of these wallets, the company didn't see anything wrong with the device at first. The unit arrived properly sealed and passed all safety checks. When started in update mode, the wallet displayed firmware version 2.4.3 and bootloader version 2.0.4. The problem was, Trezor never released bootloader version 2.0.4. Kaspersky opened the wallet and found that it had been tampered with and that the original chips had been replaced. Hackers changed the wallet's firmware and replaced the randomly generated seed phrase with one of 20 pre-generated phrases. Because of this, the hackers would have control over the wallet from the second it was connected. Kaspersky checked with Trezor, which said that similar devices had been discovered in 2022. The device Kaspersky tested was likely from the same batch, the firm said. Kaspersky warned that anyone purchasing a hardware wallet should buy it directly from the official vendor and select "models with special versions of protected microcontrollers."  --------------------------------------------------------------- ⭐ TO THE STARS Impactful developments and projects in Web3. [OKX Wallet to launch Ordinals marketplace that supports BRC-20 trading]( On Tuesday, crypto exchange major OKX announced that it will soon roll out an Ordinals marketplace on the OKX Wallet. The new feature will allow users to mint and trade Bitcoin Ordinals and BRC-20 tokens. BRC-20 or "Bitcoin Request for Comment" tokens have surged in recent weeks. Meanwhile, Ordinals are non-fungible tokens that carry text, images, and video. --------------------------------------------------------------- MORE TO CHEW ON Stuff that’s good to know. 1️⃣ [Axie Infinity launches on the Apple App store]( [Axie Infinity: Origins]( an NFT-free version of the popular Web3 game developed by Vietnam-based Sky Mavis, made its debut on the Apple App Store on May 16. Axie Infinity rose to prominence during the [P2E]( craze of the 2021 and 2022. The game is available in Argentina, Colombia, Peru, Mexico, Venezuela, Indonesia, Malaysia, and Vietnam. The game can also be downloaded from the Google Play store. 2️⃣ [Binance calls it quits in Canada]( Crypto exchange [Binance]( is halting its operations in Canada, following the announcement of tightening regulations. Binance operated throughout Canada except in Ontario, where it ceased operations in March 2022. Binance co-founder and CEO Changpeng Zhao, commonly called CZ, is a Canadian. However, Zhao founded Binance in China. 3️⃣ [EU Council puts the spotlight on crypto assets]( The [Council of the European Union]( said on Tuesday that it’s strengthening rules on the reporting of crypto transactions. The new administrative rules will both close loopholes that were used to avoid taxation and make it tougher for criminals to circumvent anti-money laundering rules. The new laws will require a mandatory and automatic exchange between tax authorities and crypto-asset service providers, as well as [extend]( existing anti-money laundering rules to cryptocurrencies. 4️⃣ [Argentine bank suspends crypto business as central bank rates skyrocket]( Argentine electronic bank Uala became the latest bank to suspend its cryptocurrency business on Monday, [Revista Enterate]( reported. Earlier this month, Argentina's Central Bank told banks to stop offering crypto services. Customers are required to sell their holdings over the next 30 days. Uala currently has 300,000 users holding crypto. The decision to ban crypto is seen as part of the Central Bank's efforts to curb inflation, which surged past 100% last month. The bank also raised interest rates to 97% on Tuesday. 5️⃣ [Jump Trading's secret deal to prop up TerraUSD]( Court documents show that Jump Trading made US$1 billion in profit through its dealings with Terraform Labs, according to the [Wall Street Journal](. On Friday, the SEC released the court filings as part of its fraud lawsuit against Terraform Labs and its co-founder Do Kwon. A January 2020 email revealed a proposed arrangement in which Jump would increase the liquidity of TerraUSD and Luna, the two coins at the center of the Terraform Labs ecosystem. TerraForm Labs would reward the trading firm with the right to buy Luna at 30 cents, 40 cents, and 50 cents over the next three years. Luna hit US$114 in April 2022 before the token’s price went to zero.  --------------------------------------------------------------- That’s all for this issue - we hope you liked it. WAGMI! P.S. 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