Coinbase Makes Vital Case: SEC Staff Must Hold Crypto for Better Regulation
Imagine regulating a technology you’re not allowed to use. That’s the current situation for staff at the U.S. Securities and Exchange Commission (SEC) when it comes to cryptocurrencies. Now, major crypto exchange Coinbase is stepping up, urging the SEC and the Office of Government Ethics (OGE) to change a rule that bans agency staff from holding crypto assets. This move is seen as crucial for developing effective crypto regulation.
Coinbase’s Push for SEC Staff Crypto Access
Coinbase’s chief legal officer, Paul Grewal, is leading the charge. In open letters sent to OGE acting director Jamieson Greer and SEC Chair Paul Atkins, Grewal argued that preventing SEC staff crypto ownership is a significant barrier. He shared these letters publicly, emphasizing a core principle: to regulate technology effectively, you must first understand it by using it.
Grewal’s argument is straightforward:
- Regulating technology requires hands-on understanding.
- Understanding digital assets requires using them.
- Allowing staff to hold crypto is essential for gaining necessary knowledge.
- This knowledge is vital for proposing and adopting workable regulatory frameworks for digital securities activity.
Understanding the Existing Ban and OGE’s Role
The rule in question is OGE Legal Advisory 22-04, issued in July 2022. This advisory prohibits SEC staff crypto activities, including buying, selling, or using crypto and stablecoins. The advisory states these assets are not ‘publicly traded securities’ and do not qualify for exceptions that apply to assets like stocks.
While the OGE issued the advisory, the SEC has the ability to take action, such as requesting rescission or implementing waivers. Grewal specifically highlighted that the current ban hinders the SEC’s ability to respond effectively to directives, such as a presidential instruction for agencies to submit crypto regulation recommendations within a tight timeframe.
Impact on Crypto Regulation Efforts
The inability of staff to interact directly with crypto is seen as a roadblock, particularly for the SEC’s Crypto Task Force. This task force is responsible for developing a regulatory framework for digital assets. Grewal’s letter to Chair Atkins and Commissioner Hester Peirce reiterated that without practical experience, the task force faces significant challenges in creating informed and effective rules.
He proposed that the SEC could issue waivers to members of the Crypto Task Force and other relevant staff. This approach, he argued, would be consistent with measures taken in similar advisory situations and would allow staff to evaluate the underlying digital asset technology they are tasked with regulating.
Paul Grewal’s Arguments and Proposed Solutions
Paul Grewal‘s core argument centers on the practical necessity of experience for effective governance. He isn’t just pointing out a problem; he’s offering solutions. The primary suggestions are:
- The OGE should rescind Legal Advisory 22-04.
- Failing a full rescission, the SEC should issue waivers, particularly for staff involved in crypto regulation efforts.
This push comes in a changing landscape at the SEC. The agency, under former Chair Gary Gensler, was known for an aggressive stance against crypto firms. However, following Gensler’s departure and the appointment of a new Chair, the SEC has shown signs of shifting its approach, opting out of several lawsuits against crypto firms, including Coinbase, and walking back enforcement actions in some cases.
Conclusion: A Vital Step for Informed Governance?
Coinbase’s plea highlights a critical challenge in regulating rapidly evolving technology. By urging the OGE and SEC to allow staff to hold SEC staff crypto, Paul Grewal makes a compelling case that practical experience is indispensable for developing sensible crypto regulation. Whether this push leads to a change in policy remains to be seen, but it underscores the industry’s view that understanding the technology firsthand is a vital step towards effective and fair oversight.
