This week, it was revealed that the crypto exchange Coinbase is facing an investigation from the U.S Securities and Exchange Commission (SEC) over allowing its users to speculate on unregistered securities. Reports claimed that regulatory officials began taking a “closer look” at Coinbase when it enabled trading of an additional 100 tokens on its platform. How this was the first red flag to provoke a serious examination remains a mystery to outside observers.

If the S.E.C concludes that every token listed on Coinbase is, in fact, an unregistered security, every crypto entity will gulp in fear. By facilitating the trading of crypto tokens, they will now be illegally engaging in what computer science professor Nicholas Weaver dubbed as “securities fraud as a business”.

Crypto bears agreed. ‘All of the insider trading, pump & dump schemes and Ponzis will become illegal overnight’, crypto critic Dare Obasanjo tweeted. ‘Coinbase marketed their products as securities to investors but never registered [them]’, added RebellionPac director Brianna Wu. “We have laws for that. It’s a classic fraud felony.”

Coinbase has already done everything contra to what you’d expect from a pro-crypto entity. Looking back, it has committed every one of crypto’s deadly sins. For starters, Coinbase insiders regularly snitch on their crypto brethren for insider trading, which is verboten in crypto circles. In an even more treasonous move, company executives have cozied up to the establishment, taking meetings with high-up government officials from the U.S Congress and Federal Reserve, such as Congresswoman Nancy Pelosi and Fed Chair Jerome Powell. This week, the execs revisited D.C — and tweeted about it.

But there’s only so much Coinbase can do at this stage. The company has been marked out for some time, especially after The Intercept published a damning report last month that permanently altered crypto’s perceptions toward one of its largest players. According to ‘contract documents’ obtained by Intercept reporters, Coinbase, the world’s largest crypto exchange, had sold intelligence tools to the U.S government. By utilising Coinbase Tracer, the crypto company’s intelligence-gathering software, Homeland Security’s Investigations Division (ICE) now had more chance of connecting cryptocurrency addresses to ‘real-world entities’. Coinbase, a prominent crypto entity, had now helped erode the privacy of its own ecosystem.

Handing over blockchain data to the Feds was yet another sin that Coinbase committed, which it did to get in the authorities’ good books. Presumably, they thought they were immune from overarching levels of regulatory scrutiny.

Is this SEC investigation the catalyst that will bring down what is essentially an unregulated Ponzi ecosystem? Judging by Coinbase’s stock, which has fallen over 20% on the news, investors think so. That could explain why even crypto mega-bull Cathie Wood dumped roughly a million and a half of Coinbase shares close to the news coming out.

It’s indeed plausible that an unhealthy amount of sanctions and fines will be dumped on Coinbase, with agencies like FINRA (Financial Industry Regulatory Authority) gaining the power to supervise crypto. This would be a disastrous outcome for the crypto community because if the power structures deem cryptocurrencies as unregistered securities, then not just Coinbase, but the wider crypto industry will succumb. For, if something is regulated that only has value because it operates in a legal grey area, it eliminates any reason for that thing to exist.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.