SEC is going to keep threatening to sue Coinbase but wont pull the trigger

This is obviously my opinion, but i think the SEC is huffing and puffing about major litigation with Coinbase. They can send them as many letters as they want, Wells notices and veiled threats through their bald skinny mouthpiece but its all just for show.

Coinbase is obviously feeling pretty good about their position, hence the rule petition request and legal threats to the SEC and you can understand why. They’re the only exchange thats filed an S-1 and become a publicly traded company (as approved by the SEC) and provide services for some of Wall Street’s biggest players and highest net worth individuals, such as Grayscale which manages SEC-compliant trust funds. The damage it would do unto investors in all kinds of products would be far felt, but the biggest hit of all would be the US government.

Reading through the article by theblock and how it’s very frightening that the US government owns 50k BTC seized through Silk Road alone, I actually find it quite bullish. Coinbase is the lone counterparty that the USG entrusts with custody/offramping their digital assets, dealing with any other exchange would have a host of other implications. The Treasury needs Coinbase to be:

1) profitable, it cant go bankrupt under any circumstance

2) sufficiently banked, anyone can hold crypto but not everyone can stay adequately liquid to service said crypto

If the SEC were to file major litigation in the midst of a bear market then CB shares tumble, mass withdrawals/sales, liquidity dries up further and a potential spiral ensues leaving the government illiquid and Coinbase bankrupt. A lawsuit alone probably wouldnt be enough, but the market can pitch in on any given Tuesday to kill an exchange’s marker cap. CB bankrupt, Treasury becomes just another creditor in line for crumbs for the assets it has in CB custody (theyre a qualified custodian under their Trust Co).

The idea of “debanking” crypto doesnt bode well either, Coinbase has managed risk well but dont forget they have ties to Circle also that has struggled to find partners. It is no easy feat to offramp 50k BTC into fiat, there’s arguably only 1 other exchange capable of such an order of magnitude and they really dont like to say the “B” word. Traditional finance rails are a must when you hit an illiquid 50k jackpot because youre not going to be able to find some piddly regional bank willing to take the other side of a 50k BTC bet, especially in this climate.

TLDR; Coinbase is well-protected because the government has a vested interest in its success, and while some people see the govt BTC holdings as a Mt. Gox situation it ensures that exchanges/banks must have adequate infrastructure and resources.