Coinbase (NASDAQ:COIN) got a “Wells Notice” from the Securities and Exchange Commission (SEC), signaling the agency’s intent to sue it over its cryptocurrency offerings.
Worse, Cathie Wood’s ARK Funds sold 180,000 shares of COIN stock. Wood, who I called the “tech whisperer” when tech stocks were hot in 2021, has been a staunch defender of Coinbase.
COIN stock fell 18% overnight, opening at a little over $63 per share this morning.
Crypto vs. SEC
Wood’s ARK funds bought Coinbase throughout the “crypto winter” last year and bought 350,000 more shares in early March. The share price jumped on the latest purchase but quickly lost most of the gain on news the funds sold half that stake.
As of today, March 23, the ARK Innovation (NYSEARCA:ARKK) fund reported that 7.5% of its assets were in COIN stock, valued at $557 million. ARKK is up 24% so far in 2023 but remains down 42% over the last year and 66% over the previous two years.
In a blog post, Coinbase management said it had asked for “reasonable crypto rules for Americans” and “got legal threats instead.”
Under chair Gary Gensler, the SEC considers most digital coins to be securities. He wants to regulate them just like stock.
Coinbase insists, following the guidance of the Commodity Futures Trading Commission (CFTC), that its coins are commodities. The exchange also had its initial public offering (IPO) on the same day the U.S. Senate approved Gensler’s nomination.
Since then, Gensler has been trying to force crypto into compliance with his view on the law, despite political and legal pushback.
The industry, led by Coinbase, insists that crypto is outside the SEC’s jurisdiction. An SEC suit on that question, involving Ripple Labs, is currently in federal court.
COIN Stock: What Happens Next?
If the SEC wins its case against Ripple, a suit against Coinbase could also be successful. It doesn’t matter whether crypto is, in fact, a security or a commodity. What matters is what the law says.
A tomato may be a fruit on the vine, but it’s a vegetable under the law.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.