Coinbase is calling on the US Office of Government Ethics to remove a rule stopping SEC employees from holding cryptocurrency. Paul Grewal, Coinbase’s chief legal officer, argues that staff need to engage with crypto to properly regulate it. He suggests issuing waivers to facilitate this knowledge acquisition. The ongoing debate follows a change in SEC leadership and a leniency towards crypto regulations post-Gensler’s resignation.
Coinbase has made headlines recently by urging the US Office of Government Ethics (OGE) to lift a rule that currently prohibits staff at the Securities and Exchange Commission (SEC) from holding cryptocurrencies. This move, led by Coinbase’s chief legal officer Paul Grewal, was articulated in open letters directed to acting OGE director Jamieson Greer and the new SEC Chair, Paul Atkins. According to Grewal, SEC staff should have the opportunity to engage with cryptocurrency to gain a deeper understanding for effective regulation.
In his argument, Grewal emphasised that to regulate a technology comprehensively, one must intimately know it, arguing that firsthand experience is crucial for the SEC’s staff. He stated, “To regulate technology, you need to understand it. To understand technology, you need to use it”. He insists that allowing SEC staff to hold cryptocurrencies can foster the necessary expertise to devise sound regulatory frameworks.
The advisory in question, Legal Advisory 22-04, issued back on July 4, 2022, restricts the SEC staff from using cryptocurrencies, labelling them as non-“publicly traded securities.” This status means they don’t fall under the same exceptions as stocks, highlighting a regulatory gap that some believe needs bridging.
Grewal pointed out that directives from past President Donald Trump called for comprehensive regulatory recommendations within a short time frame, yet current regulations hamper SEC staff from engaging with the very technology about which they must create proposals. He raised similar points in letters to both Atkins and SEC commissioner Hester Peirce, addressing challenges facing the agency’s Crypto Task Force due to these restrictions.
Though the OGE’s role is to modify the advisory, Grewal emphasised that the SEC itself can take direct action. He suggested the idea of issuing waivers for staff involved in crypto-related tasks, similar to measures taken in related scenarios. This waiver would enable SEC personnel on the Crypto Task Force to better assess digital assets and technology.
Interestingly, former SEC Chair Gary Gensler, who was known for his strict stance on crypto regulations, resigned earlier this year after aggressively pursuing numerous regulatory actions against crypto firms. Since his departure, the SEC has seemingly become less aggressive in its approach to enforcement, including a decision back in February to abandon lawsuits against several firms like Coinbase and a recent April 24 indication of reconsidering enforcement against blockchain operator Dragonchain.
