US regulator threatens Coinbase of a potential lawsuit

The Securities and Exchange Commission (SEC) is reportedly planning to sue Coinbase, one of the largest cryptocurrency exchanges in the world. The regulator has flagged the exchange’s wallet service and feature called Coinbase Earn. The company received Well’s notice from SEC, which is an indication that the regulator believes the company has violated investor protection laws and an alert for a potential action from SEC. The CEO of Coinbase alleged that they were handed with a legal notice while they asked for clear cryptocurrency regulation in the United States.

The price of Coinbase's shares dropped almost 12% after hours, following an 8% drop during normal trading. Following the Federal Reserve's decision on Wednesday to raise interest rates and SEC notice to Coinbase, cryptocurrencies, including bitcoin experienced a downturn after several days of surge. Bitcoin fell from $28,000 to below $27,000.

A SEC case against a cryptocurrency exchange could have dire consequences, since authorities can ask for injunctions to stop the business from engaging in activities they claim are illegal. In addition, Wells Notice claimed that Coinbase had mentioned digital assets that might be considered unlicensed securities, though it did not identify which assets they might be.