Coinbase Urges US Ethics Office to Lift SEC Crypto Ban for Regulatory Clarity

In a bold move to reshape crypto regulation, Coinbase has called on the U.S. Office of Government Ethics (OGE) to eliminate a controversial rule preventing SEC staff from holding digital assets. The exchange argues that hands-on experience is critical for effective oversight—but will regulators agree?

Why Coinbase Is Challenging the SEC Crypto Ban

Coinbase Chief Legal Officer Paul Grewal escalated the debate on April 25 through open letters to OGE acting director Jamieson Greer and new SEC Chair Paul Atkins. At stake: Legal Advisory 22-04, a July 2022 rule prohibiting SEC employees from crypto transactions because digital assets don’t qualify as “publicly traded securities.”

Key arguments in Grewal’s letters:

• “To regulate technology, you need to understand it. To understand technology, you need to use it.”
• SEC staff require practical crypto exposure to develop “workable regulatory frameworks”
• The ban creates knowledge gaps as the SEC prepares crypto policy recommendations requested by President Trump

The SEC’s Regulatory Paradox

The irony is palpable: The agency tasked with overseeing crypto markets has barred its own experts from firsthand experience. This restriction comes as the SEC’s Crypto Task Force faces mounting pressure to deliver comprehensive guidelines within 90 days.

Grewal highlighted the disconnect: “Staff still cannot use the technology on which they are making recommendations.” He proposed immediate waivers for Task Force members—a move he claims would mirror exceptions granted in comparable situations.

Three Critical Implications

1. Regulatory Effectiveness
Without practical crypto exposure, SEC staff may struggle to distinguish between legitimate innovations and potential risks. This knowledge gap could lead to either overly restrictive policies or dangerous regulatory blind spots.

2. Industry-Regulator Relations
The ban perpetuates an “us vs. them” dynamic between crypto firms and watchdogs. Allowing SEC participation could foster more collaborative, informed policymaking.

3. Legal Precedent
The OGE’s classification of crypto as non-securities for employee holdings contradicts the SEC’s frequent enforcement actions treating tokens as securities—a contradiction that may need judicial resolution.

Post-Gensler Shift in SEC Approach

The push comes amid noticeable softening in SEC crypto enforcement since Gary Gensler’s January departure. Recent developments include:

• February 27: Dropped lawsuits against Coinbase and other firms
• April 24: Announced plans to settle with Dragonchain
• Reduced pace of new enforcement actions

This changing landscape makes Coinbase’s proposal particularly timely. With a new SEC chair and shifting enforcement priorities, the crypto industry sees an opportunity to reshape engagement frameworks.

Potential Outcomes and Industry Impact

Should the OGE or SEC act on Coinbase’s request, several scenarios could unfold:

Best Case: Regulators gain nuanced understanding, leading to balanced policies that protect investors while fostering innovation. Crypto markets respond positively to clearer regulatory expectations.

Worst Case: Perceived conflicts of interest emerge if SEC staff investments appear to influence policy. Critics amplify “revolving door” concerns between regulators and industry.

Most Likely: Limited waivers for specific SEC teams, with strict disclosure requirements. Gradual expansion as regulatory frameworks mature.

The Path Forward for Crypto Regulation

Coinbase’s move highlights a fundamental tension in emerging tech regulation: How can overseers effectively monitor what they’re barred from experiencing? The solution may require:

• Structured crypto education programs for regulators
• Transparent disclosure systems for government crypto holdings
• Clear guidelines on permissible crypto engagement
• Pilot programs allowing limited SEC staff participation

As the debate continues, one truth becomes clear: In the fast-evolving crypto landscape, regulatory policies can’t remain static. Whether through waivers, rule changes, or new frameworks, the SEC will need to adapt its approach to keep pace with the technology it oversees.

What’s Next: Industry participants should monitor OGE responses and SEC staffing announcements for signals about potential policy shifts. The coming months may determine whether U.S. crypto regulation develops through hands-on engagement or arm’s-length speculation.