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SEC asked Coinbase to delist all crypto tokens except bitcoin: Report

Coinbase CEO Brian Armstrong claims that, ahead of its legal action against the company, the SEC requested that the platform delist most crypto tokens, except bitcoin, according to a report from the Financial Times. Yahoo Finance Crypto Reporter David Hollerith breaks down the report.

Video Transcript

- Well, early this morning we got more color on the clash between the Securities and Exchange Commission and Coinbase before the SEC filed legal action against the major US crypto exchange in June. Here to tell us more, we're joined by our senior reporter David Hollerith. So David, give us some context here.

DAVID HOLLERITH: Yeah, Rochelle. So as you mentioned, the SEC sued Coinbase at the beginning of June for allegedly operating an unregistered Securities Exchange. Now in the SEC's lawsuit, they named 13 different cryptocurrencies, including ADA and Sol, which they identified as crypto security assets.

Now according to this story from the Financial Times from earlier this morning, the Coinbase CEO Brian Armstrong said that ahead of launching the legal action against the crypto exchange, the SEC had asked Coinbase to delist more than 200 of its crypto tokens. And this essentially is everything but Bitcoin is what Armstrong was highlighting. And that is obviously far different from the 13 or so coins that are named in the lawsuit. And the implication here is pretty clear.

Armstrong has argued in his statement is that if Coinbase had agreed with the SEC and hadn't opposed it and this case hadn't gone to court, it would have essentially set a legal precedent for the crypto industry, which would have stilted it as far as how much it could grow in the US.

So again, this goes back to the legal murkiness between whether or not a cryptocurrency is a commodity or a security in the US. And there's not a clear law decided. There the SEC believes that most everything, except Bitcoin, in the crypto asset class is a security. And this is obviously now playing out a series of lawsuits in the courts. The most-- I guess the latest stage lawsuit of these we would bring up would be the Ripple case against the SEC.

So it's also interesting that owning Coinbase stock at this point has kind of become like a regulatory bet for investors on the crypto industry having sort of a more positive regulatory outlook in the near future. It's particularly interesting if you look at Coinbase's stock compared to Bitcoin.

So there's also this ETF situation that's been going on. BlackRock and a number of other asset managers have filed for a Bitcoin ETF, naming Coinbase is a major partner in those offerings. And that, of course, needs to be approved by the SEC. But around the time of the lawsuit and the BlackRock filing, Coinbase's stock has significantly outperformed Bitcoin.

And that's interesting because for most of its-- since its inception, for most of its trading history, Coinbase's stock has well underperformed Bitcoin. So we're seeing a huge outperformance over the month of July and we're going to continue to watch that obviously on Thursday when the company reports second quarter earnings. And we'll want to hear more about the regulatory side of things. It is interesting, though, that Coinbase, their financials are important as ever but it does seem like the legal clash right now is really defining how the stock performs.