Renowned attorney Bill Morgan recently shared his thoughts via social media on why major San Francisco-based cryptocurrency exchange Coinbase would not treat Ethereum (ETH) and Bitcoin (BTC) similarly to XRP. According to Morgan, the two most highly valued cryptocurrencies by market cap are integral to Coinbase’s business model.
XRP’s Rocky Relationship with Coinbase
Coinbase first listed XRP in 2019 but removed the coin on January 19, 2021, a short time after the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple for breaching securities rules. The exchange cited the SEC’s enforcement action against Ripple Labs as the primary reason behind the decision to suspend XRP trading.
Attorney Morgan highlighted that even if litigation identified BTC and ETH as securities, Coinbase would not have delisted them. Removing these cryptocurrencies would have severe financial consequences for the exchange, as they represent 65% of its total trading volume.
Navigating the Regulatory Landscape
The SEC issued a Wells Notice to Coinbase earlier this year, a letter that informs a company of potential enforcement action following an investigation into possible violations of securities laws.
Coinbase responded to the SEC’s Wells Notice by asserting that it uses a stringent process to ensure that it does not support crypto assets classified as securities. Additionally, the exchange argued that secondary market transactions do not fulfill any of the four elements of the Howey test.
Leveraging SEC Staff Statements
Marc Fagel, a former SEC lawyer, expressed skepticism about Coinbase’s fair notice defense in response to the regulator’s claim. However, Morgan believes that the exchange does have a valid fair notice defense for Bitcoin and Ethereum due to their substantial contribution to trading volume.
Morgan further explained that Coinbase would rely on remarks from high-ranking SEC personnel, such as William Hinman, to establish a fair notice defense for the two most significant cryptocurrencies by market cap. This strategy would help the exchange reinforce its stance on not delisting ETH and BTC, despite the regulatory challenges it faces.