Regulatory Heat Turns Up on Bybit and Coinbase Amidst Crypto Scrutiny

Coinbase, the United States’ largest cryptocurrency exchange, has been drawn into a regulatory inquiry involving Bybit, a crypto exchange based in Dubai. The Commodity Futures Trading Commission (CFTC) issued a subpoena to Coinbase, seeking detailed information on user accounts and transactions, particularly those associated with Bybit.

On November 27, 2023, Coinbase notified its users about the subpoena through emails. These communications highlighted that the exchange might have to provide the requested information to the CFTC unless a legal motion to quash or an objection is filed by November 30, 2023. The email, as reported by users, stated, “Coinbase has been served with a subpoena,” emphasizing that no immediate action was required from the recipients.

The CFTC’s investigation powers include issuing subpoenas and requesting voluntary statements. In compliance with legal obligations, Coinbase’s policy involves disclosing necessary information in response to legal, regulatory, and governmental requests. This stance aligns with the exchange’s commitment, as mentioned in a May post, to comply with legal requirements, including those involving subpoenas.

Bybit, under the leadership of CEO Ben Zhou, has recently faced regulatory challenges in the UK and Japan. The exchange, which only implemented mandatory KYC checks earlier this year, also suspended US dollar transfers after the collapse of Silvergate Bank. These developments have placed Bybit under increased scrutiny from various financial watchdogs.

Alice Comfy, CIO of Shinoji Research, remarked on the situation, suggesting that the CFTC’s action could be a way of proving that Bybit was serving US customers, potentially leading to similar regulatory responses as seen with Binance and BitMEX.

This is a clever way of determining that ByBit had US users (previous attempts were less sophisticated), which can then lead to CFTC action similar to what Binance & BitMEX went through.

I imagine ByBit will end up in relatively more trouble given they tolerated it longer. https://t.co/NObceNyJPC
— Alice (e/nya)🐈‍⬛ (@Alice_comfy) November 28, 2023

Amidst this backdrop, the Securities and Exchange Commission (SEC) has also been active in regulatory oversight. This month, PayPal disclosed receiving an SEC subpoena concerning its PayPal USD stablecoin, indicating a broader regulatory focus on the crypto sector.

Coinbase itself has not been immune to regulatory challenges. The SEC filed a lawsuit against Coinbase in June, alleging that the exchange operated illegally as a broker and clearing agency. This action mirrored the charges faced by Binance, which included accusations of misleading customers and misappropriating funds.