Coinbase’s “Earn” program is particularly vulnerable to regulatory action following the recent ruling in the case between Ripple and the US Securities and Exchange Commission (SEC), a report by investment firm Berenberg Capital has warned.
In the report, the firm said that the risk to Coinbase is that Earn, a program where retail users can stake certain tokens in exchange for rewards, could be subject to US securities laws.
In addition to disrupting Coinbase’s business in the US and potentially ending the Earn program, any regulatory action against the major exchange could also derail its recent stock market rally, the report warned.
Shares of Coinbase, which trade on the Nasdaq stock exchange under the symbol COIN, have risen more than 130% since hitting a low on June 6.
At press time on Wednesday, COIN was trading at a price of $109, well above its June low of $46.
According to Berenberg, it is the wording in the Ripple vs SEC case decision that has presented challenges for Coinbase’s Earn program.
In the ruling, Judge Analisa Torres wrote that Ripple’s XRP token is “not itself” a security, and that its classification would depend on the context in which the token is used.
One activity for XRP tokens that could mean they would be classified as a security is staking where users earn rewards, such as in Coinbase’s Earn program.
Cryptocurrency exchanges in the US are generally not allowed to offer tokens for trading if they are considered securities, and doing so would make the venue an unregistered securities exchange.
This is exactly what the SEC has accused Binance.US of in its recent lawsuit against the exchange.
The SEC is the regulator in charge of overseeing securities trading and stock exchanges in the US, while the Commodity Futures Trading Commission (CFTC) is in charge of overseeing commodity trading.
So far, only Bitcoin (BTC) has been confirmed as a commodity for regulatory purposes in the US.
However, despite the mixed signals from the ruling, Coinbase and other large US-based crypto exchanges have already announced that XRP will now once again be a tradable asset on their markets.
Most US cryptocurrency exchanges delisted XRP in early 2021 over concerns related to its regulatory classification.