When Coinbase Global Inc. became the first US crypto exchange to go public, the Nasdaq debut was seen as a sign the freewheeling industry was joining the financial mainstream with the blessing of US regulators.

The materials Coinbase circulated to investors, however, flagged a major risk: The Securities and Exchange Commission could decide that some tokens traded on Coinbase’s platform are securities just like stocks or bonds — bringing all the regulations that come with it.

Two years later, that’s what appears to be happening as the SEC moves to rein in a market rocked by scandals and bankruptcies. And with it is brewing a legal battle over an enforcement push that threatens to reshape Coinbase and the rest of an industry rooted in gray areas of the law.

“The business could be materially different than what they are today,” said TD Cowen analyst Stephen Glagola, who has an underperform rating on Coinbase shares, the equivalent of a sell recommendation. He said the company noted it “potentially could require Coinbase to jettison its entire customer-facing business. There’s just existential risk.”

The conflict reflects the SEC’s broader haste to crack down on the cryptocurrency industry since the collapse of rival exchange FTX in a cloud of alleged fraud shook markets late last year. The regulator has since sued other crypto-trading platforms — including Beaxy.com and Bittrex Inc. — for allegedly operating unregistered exchanges, brokerages, and clearing businesses. It also reached a settlement with Kraken over its US staking program — a service that allowed customers to earn rewards in exchange for letting their tokens to be used to order transactions on blockchains.

In March, Coinbase said the SEC sent a so-called Wells notice warning that it planned to bring an enforcement action against the company, too. While the details of the allegations haven’t been publicly disclosed, analysts at Jefferies estimate that about 35% of Coinbase’s net revenue is potentially at-risk, depending on the SEC’s course of action.

J. Austin Campbell, an adjunct assistant professor at Columbia Business School, said the industry at large has adopted a tougher stance toward regulators at the SEC because the threat to the foundations of their businesses is giving them little incentive to cooperate. “So we’re gonna go the other path and fight,” he said, in characterizing their views, “because we have nothing to lose.”

Coinbase has indicated that it plans to do just that. It’s maintaining that the tokens that are traded on its platform aren’t securities and told the SEC in response to the notice that it would be a “well-resourced adversary that will necessarily be motivated to exhaust all avenues.” A spokesperson for the SEC declined to comment.

“The lawsuit does seem inevitable at this point,” Coinbase Chief Executive Officer Brian Armstrong said in an April interview on Capitol Hill. “It’s certainly unfortunate that we’re here.”

Armstrong had previously touted photos of his frequent trips to the US capital to meet with regulators and lawmakers. Coinbase also cast itself as a company eager to play by the book, illustrated by its licenses from New York and dozens of other states. In 2022 it acquired a derivatives exchange regulated by Commodity Futures Trading Commission.

The stakes in the outcome of the SEC’s push are particularly high for Coinbase, which is already contending with declining revenue, a string of quarterly losses and a stock-market valuation that’s fallen sharply since crypto prices tumbled from their peaks. On Thursday, it’s expected to report that first-quarter revenue dropped some 44% from a year earlier to about $654 million, according to estimates compiled by Bloomberg. Analysts predict it will report a loss of about $330 million, its fifth straight money-losing quarter. Its shares have slid 86% since they hit a closing high in early November 2021.

Coinbase’s relationship with the SEC began to sour in 2021, when Armstrong put out a series of aggressive tweets protesting the agency’s threat to sue his company over its planned lending product. Coinbase ended up axing the launch instead; it also suspended trading in the token XRP after the SEC sued the firm behind it, Ripple Labs Inc., alleging that its sales of it were securities offerings that should have been registered with the agency.

Coinbase has taken a firmer approach to the latest legal threat, saying it plans to operate as usual while preparing for a lawsuit. It has continued to list six tokens - including Algorand - that the SEC alleged were unregistered securities in a recent suit against crypto exchange Bittrex.

Paul Grewal, Coinbase’s chief legal officer, said in an interview that the current rules required for registered securities exchanges are antithetical to the way blockchain works and impose “intermediaries and structures that serve no functional purpose, and would only add to the cost of trading.”

On social media, Armstrong is rallying public support through a campaign called “Stand with Crypto.” Coinbase has also backed a lawsuit against the US Treasury Department over the sanctioning of Tornado Cash, a crypto-mixing service that obscures sources of coin transactions. Coinbase has also sued the SEC, alleging the agency failed to respond promptly to its rule-making request.

“Coinbase’s behavior has been incredibly antagonistic — they’ve tried to rile up the mob,” said John Reed Stark, a former SEC enforcement attorney who now runs his own consulting firm. “You don’t fight with your regulator. It’s like fighting with the DMV. They’ll take your driver’s license away.”

While the US legal battle is playing out, Coinbase is hedging its bets with overseas expansion plans. This week, it launched an international derivatives exchange with a license from Bermuda.

“If the US is in a hostile posture to crypto, which is not in line with what other major economies of the world are doing, then we’re going to invest more money overseas,” Armstrong said.