Coinbase Global ( NASDAQ: COIN ) stock tumbled 14% in Tuesday morning trading after the U.S. Securities and Exchange Commission filed a lawsuit against the cryptocurrency exchange , alleging that it's operating as an unregistered securities broker. Bitcoin ( BTC-USD ), which initially slid after the news, has erased most of the decline and at about 11:36 AM is down 0.3% to almost $26K. As recently as April 17, the token had been trading at ~$30K. Ethereum ( ETH-USD ), meanwhile, completely reversed its drop, adding 0.7% . Since at least 2019, Coinbase ( COIN ) has unlawfully facilitated the buying and selling of crypto asset securities, the SEC said, according to its complaint. The suit comes a day after the regulator sued Binance, the world's largest crypto exchange, and its CEO for allegedly violating U.S. securities regulations. "We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions," said SEC Chair Gary Gensler. "In other parts of our securities markets, these functions are separate." Update at 11:28 AM ET: In addition, individual states are exerting pressure in the crypto space. Alabama issued a "show cause order" that gives Coinbase ( COIN ) 28 days to show why it shouldn't be directed to stop selling unregistered securities in the state. The order is the result of a multi-state task force of 10 states securities regulators, the Alabama Securities Commission said in a statement Tuesday. The states allege that Coinbase ( COIN ) violated securities law by offering a staking rewards program without a registration to offer or sell securities. Under staking, investors lock their crypto assets for a set period to help support the operations of a blockchain. In exchange, the investors are promised more crypto assets, the states said. Other states taking action against the crypto exchange are: California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin. Crypto-related stocks also mostly recovered from their early swoon. MicroStrategy ( MSTR ) +3.5% after announcing a new AI partnership with Microsoft ; Riot Platforms ( RIOT ) -0.8% ; Marathon Digital ( MARA ) +1.4% ; Hive Blockchain ( HIVE ) +0.3% . The SEC has long contended that most digital tokens qualify as securities rather than currency. In 2018, though, an SEC official had said that neither bitcoin ( BTC-USD ) nor ethereum ( ETH-USD ) are securities. 2:40 PM ET: Coinbase ( COIN ) has been wrangling with the SEC for months. In March, when the crypto exchange received a Wells notice for a potential enforcement action from the SEC, the company said the SEC has refused to respond to its proposals regarding registration. In April, Coinbase ( COIN ) sued the SEC seeking to force a response on its rulemaking petition. The confusion over crypto regulation is far from resolved. In a document on Tuesday, the Committee on Capital Markets Regulation, a group made up of finance industry leaders, academics, former poliymakers and legal and accounting experts, said :"the SEC's own policies in fact make it impossible for crypto asset trading platform to do what the SEC now insists that they do — that is, registering and operating in compliance with the regulatory framework for securities exchanges." (Editor's note: A previous version erroneously described the Committee on Capital Market Regulation as a House committee.) More on the Crypto Clampdown: Binance's Canada exit has been a boon for rival Kraken Canada's OSC probes Binance over whether the crypto exchange tried to skirt rules SEC asks court to reject Coinbase petition on crypto rulemaking SEC's Gensler defends crypto regulation at House oversight hearing
