Coinbase sued by SEC; US stocks fall

Digital currency trading firm Coinbase will be sued by the US markets regulator,  the Securities and Exchange Commission, if the company goes ahead with plans for a cryptocurrency lending scheme. 

The lending program would allow users to earn interest by lending digital money, but the SEC has classified the product as an investment security.

Coinbase’s chief legal officer, Paul Grewal, said the SEC told the company last week that it intended to legally charge Coinbase, so the firm planned to delay the launch of its “Lend” product until at least October.

The company’s chief executive officer, Brian Armstrong, took to Twitter to slam the agency’s handling of the firm’s plans to roll out the product and said the agency had denied him a meeting.

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An SEC official told Reuters that the agency had held discussions with Coinbase.

Both its CEO and chief legal officer said that Coinbase disputes the SEC’s determination. 

The executive’s remarks provide a glimpse into the rising tension between the cryptocurrency industry and regulators.

SEC chairman Gary Gensler has described the industry as a “Wild West”, riddled with fraud and investor risk. 

Mr Gensler has said some digital assets and platforms were operating as, or offering, securities, bringing them under the SEC’s oversight.

Coinbase shares fell 3.2 per cent, to $US258.20.

Bitcoin rose 0.3 per cent, to $46,270 per digital coin. 

US stocks taper 

Trade on Wall Street pulled back as investors worried about rising COVID-19 cases around the world as well as the timing of the US Federal Reserve’s plan to ease back on its pandemic stimulus. 

The Dow Jones Industrial Average lost 0.20 per cent, to 35,031, the S&P 500 dropped 0.13 per cent, to 4,514, and the Nasdaq Composite lost 0.6 per cent, to 15,286.

Six of the 11 S&P 500 sector indices fell, with materials and energy the deepest decliners, down more than 1 per cent each.

Apple (-1pc) and Facebook (-1.2pc) fell after helping push the Nasdaq index to record highs in the previous session.

Digital currency platform Coinbase dropped after the corporate regulator the Securities Exchange Commission threatened to sue it. 

Payments firm Paypal fell after buying a Japanese buy now, pay later company. 

The dips in those two Silicon Valley giants contributed more than any other companies to the S&P 500’s decline for the session.

Investors have become more cautious after Friday’s weak August payrolls data, while pressures from rising costs, despite the economy slowing, have increased concerns that the Fed could move sooner than expected to scale back massive monetary measures enacted last year to shield the economy from the COVID-19 pandemic.

In its latest Beige Book report, the Federal Reserve said the North American economy had “downshifted slightly” in August as concerns grew over how the renewed surge of COVID-19 cases would affect the economy’s recovery. 

Chief investment strategist at CFRA Sam Stovall said shareholders were hedging their bets. 

“They can’t make up their minds, so they have not committed to long-term positions.”

St Louis Federal Reserve Bank president James Bullard told the Financial Times that the Fed should move forward with a plan to trim its pandemic stimulus program despite a slowdown in job growth. 

European markets

Across the Atlantic, European shares fell on jitters that the European Central Bank will start to roll back its pandemic stimulus. 

The FTSE 100 index lost 0.8 per cent, to 7,096 , the DAX in Germany fell 1.5 per cent, to 15,610, while the CAC 40 in Paris 6,669, down 0.9 per cent.

The ASX SPI 200 index has fallen 0.5pc, to 7,478, while the Australian dollar lost ground to 73.65 US cents.

Reserve Bank deputy governor Guy Debelle will give a speech today at the Asia Securities Industry and Financial Markets online conference.