- Coinbase CEO, Brian Armstrong, is in a battle with regulators. The SEC sued his company, saying Coinbase broke the
rules by listing tokens that the regulator alleges are
subject to securities laws. He sat down with "The Journal"
to discuss the situation. This doesn't seem like
one where there's a lot of dispute about the facts. You are trading
cryptocurrencies on Coinbase. The question really is,
are you breaking the law? And is what you are trading a security? What's your interpretation of the law? - Basically, we're in this environment of regulation by enforcement. I don't feel like there's
a clear rule book. The only sort of high level
statements they've made is that everything other
than Bitcoin is a security, which that's just not
what it says in the law. And by the way, that
would also kind of mean like the end of the crypto
industry in the U.S. if that was actually what happened. And so we have to go to
court to challenge that. We're proud to do it for the
industry and for America. - But this has been something that has been hanging over the industry and Coinbase for a while. You and your S1 when
you filed to go public, put down as a risk. The SEC may decide that the
stuff that we are trading is in fact a security. But you pushed ahead anyway
and built a business, and grew that business
and added more tokens and added more assets. Tell us why you did that. - Well, there are certainly
crypto securities out there. In fact, Coinbase has reviewed well over 1,000 different assets. 90% of them we've rejected. The 10% or less of assets
that we've reviewed that we did decide to list, we feel that those are crypto commodities. And so they don't need to be registered and traded with under an SEC license. - So the question of what is a security, to zoom way out, you've got like baseball cards at one end, you've got Apple stock
on the other end, right? Baseball cards, clearly not a security. We trade baseball cards. They have value, but nobody thinks that like a 1987 tops Daryl
Strawberry is a security. Apple stock, clearly a security. Big gap between those things. And the SEC is making arguments that a bunch of things
that you trade on Coinbase are more over here, closer to Apple. How do you think about that distinction? - There is this thing called
the Howey Test, right? Which is the definition of a security. And it kind of says, "Is there an investment of
money in a common enterprise with an expectation of profit based on the effort of others?" So it has those kind of four prongs. The important thing to know is that all four of those
things have to be true, right? So there's various ways that you could imagine an a crypto asset would not be a security, right? If it's sufficiently decentralized, there's no common enterprise, right? If there's some specific
utility around it, it's not specifically, it's not just for the purpose of the value of going up, right? And so what we need in the
United States at this point is regulatory clarity. - So you looked at
thousands or a 1,000 tokens, you listed 250-ish of them. And the SEC has a problem
with 13, at least 13, but they highlight 13. But the issue is you
have to bat 1,000, right? You can't have any securities. You've gotta have all 250 that you trade can't be securities, otherwise, you're running an
unlicensed securities exchange, and an unlicensed clearing
house, and an unlicensed broker. So it seems like the odds are
kind of not in your favor. - So that's not really how I think of it. Remember, the goal of this lawsuit is to get clarity for the industry, right? And we've actually been
formally petitioning the SEC for clarity for the long time. - The SEC's goal is to stop you from breaking the law on their view. It's not, I don't think they
think that there's a lack of clarity in the industry. I think they think that
you're breaking the law. - Well, that may be what they say, but I can assure you there's
a huge lack of clarity. But we feel strongly, all of
the ones that we listed there since we took a pretty
conservative approach, they are commodities. - The SEC says in its complaint that you rushed that process. How do you respond to that? - I feel pretty comfortable
about the analysis. The irony of this is that we
were continuously asking them during this period, "Can
you give us more clarity?" Like that's how it's supposed to work. - You have taken, I
think it's fair to say, a reasonably confrontational
approach for the SEC. There's a Twitter thread in which you said there's some sketchy things going on. Do you regret that approach? - Well, I wouldn't say our approach has been confrontational. It is with great... We've never relished the opportunity or the idea of like
ending up in litigation with our regulator. In fact, quite the opposite. And by the way, I have
a great deal of respect for the people at the SEC,
the staff, the commissioners. I think our relationship with the chair has been quite difficult, honestly. But there's a lot of really
good people at the SEC, and we've had no issue working with every other
regulator out there, both in the U.S., but
also internationally. - Why has the relationship
with Chair Gensler been difficult? - I don't know. I don't wanna speculate on his motives or anything like that. But when he first came into the role, I made an effort to kind of fly out there and go meet with him. I don't know why the
schedules wouldn't align. We made several attempts. We eventually did get to
meet, but only virtually- - Have you ever had a one-on-one
meeting in person with him? - I've never been able to
meet with him in person, which is rare. - What is sort of Brian Armstrong's dream regulatory structure for crypto? - Well, so the first one is we
just need to get some clarity about the market structure
and how the CFTC and the SEC are both gonna regulate this industry. What are the boundaries? I think we also need to just bring in some basic consumer protection. It's actually not rocket science. This is just applying some of these really
basic common sense ideas to the industry. And then once we have
that legislation in place, I think we'll start to see
some of the entrepreneurs who've left the U.S. come back and say, "Okay, I feel that we're not
just gonna be attacked randomly or have incredibly high legal
bills at any given moment, and we can actually build a business here in the U.S. again."
