Coinbase and SEC Battle Over Lack of Clear Crypto Regulations

Jimmy Aki
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Coinbase and the U.S. Securities and Exchange Commission (SEC) continue to clash over the need for clear regulatory guidelines for cryptocurrency in the U.S. On September 23, a U.S. federal appeals court in Philadelphia heard arguments about Coinbase’s request for more transparent rules regarding digital assets.

Ongoing Legal Battles

According to a Reuter report, Coinbase argued that the SEC has not provided sufficient clarity for crypto companies to operate within the existing legal framework.

This long-time legal battle can be traced to 2022, when Coinbase asked the SEC to create rules for digital assets, including clarifying which cryptocurrencies are classified as securities.

However, the SEC denied this petition in late 2023 with a brief, two-page explanation, prompting Coinbase to seek judicial intervention.

At yesterday’s court, the SEC’s refusal was questioned by Judge Thomas Ambro, who stated that the reasoning for the denial seemed “pretty darn close to vacuous,” according to Law360.

Coinbase’s lawyer, Eugene Scalia, told the court that the SEC had provided “zero explanation” for rejecting the company’s petition for clearer rules.

Coinbase’s Chief Legal Officer, Paul Grewal, also emphasized that the SEC’s enforcement approach against crypto companies has been arbitrary, calling for the regulator to provide a clear path for compliance.

In June 2023, the SEC sued Coinbase for operating as an unregistered broker and exchange. The lawsuit also claimed that Coinbase’s staking programs and certain listed digital assets were securities under U.S. law.

However, Coinbase filed its lawsuit against the SEC in April, claiming that the regulator’s actions were inconsistent and lacked proper justification over its classification of crypto as securities.

Judicial Pressure on the SEC

During the court hearing, the panel of judges questioned how the SEC can enforce actions against the crypto industry without providing clear regulatory guidance.

Judge Stephanos Bibas pointed out that the SEC has repeatedly taken enforcement actions but has not issued rules or high-level guidance that crypto firms could follow.

He noted, “It’s not that the agency isn’t interested in the area, it’s just interested in picking off wrongs without giving higher-level guidance.” The judges’ concerns reflected a growing frustration with the SEC’s handling of the crypto sector.

Despite these concerns, the SEC maintained that other priorities and ongoing projects were reasons for denying Coinbase’s request for rulemaking. However, the court’s pointed questioning suggested dissatisfaction with the SEC’s vague response.

Notably, Coinbase is not the only crypto firm embroiled in a legal tussle with the SEC over regulatory clarity. The SEC has been actively targeting other crypto firms for alleged violations of securities laws.

Ripple Labs, which faced charges for conducting an unregistered securities offering through its XRP token, and Binance, the world’s largest cryptocurrency exchange, have also had significant run-ins with the SEC.

Both firms have challenged the SEC’s interpretations of existing securities laws, arguing that the regulations are outdated and fail to address the unique characteristics of digital assets.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.