Coinbase Appeals for Clarity on Crypto Trades

Jimmy Aki
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Coinbase, a leading cryptocurrency exchange, has petitioned the U.S. Court of Appeals for the Second Circuit to rule that crypto trades conducted on its platform should not be classified as securities transactions.

This move is part of Coinbase’s ongoing response to a lawsuit filed by the Securities and Exchange Commission (SEC) in June 2023, which accused the company of operating as an unregistered securities exchange.

Coinbase Seeks Legal Determination on Crypto Trades

In its January 21 filing, Coinbase emphasized the critical need for clarity regarding the regulatory status of crypto trades. The company stated that understanding whether secondary market crypto transactions qualify as investment contracts under existing securities laws is of “immense importance to the crypto industry.”

Coinbase argued that market participants face inconsistent rules across different jurisdictions without clear guidelines, leading to uncertainty about regulatory responsibilities.

The SEC’s lawsuit against Coinbase centers on allegations that the exchange has been functioning as an unregistered broker, exchange, and clearing agency since 2019.

The SEC contends that Coinbase facilitated trading of at least 13 crypto assets that it considers securities, violating federal securities laws.

Coinbase disputes these allegations, asserting that transactions on its platform are asset sales rather than securities transactions.

The company maintains that buyers and sellers engage in direct asset sales without any ongoing obligations or promises between them post-sale.

Furthermore, purchasers do not acquire rights against the asset’s issuer, which distinguishes these transactions from traditional securities like stocks or bonds.

Implications of the SEC Lawsuit

This legal battle is set against a backdrop of increasing regulatory scrutiny of the cryptocurrency sector. In June 2023, the SEC also filed charges against Binance, another major crypto exchange, alleging similar violations related to operating without proper registration and mishandling customer funds.

A central issue in these cases is the application of the Howey Test, a legal standard from a 1946 Supreme Court decision used to determine what constitutes a security.

The SEC applies this test to assess whether certain crypto assets should be classified as securities, which significantly affects how these assets are regulated.

Coinbase’s appeal to the Second Circuit seeks to resolve these ambiguities by obtaining a definitive legal ruling on the status of crypto trades.

As the case progresses, its outcome is expected to have far-reaching effects on the regulatory landscape of cryptocurrencies in the U.S., potentially influencing how digital assets are classified and governed in the future.

Additionally, President Donald Trump is reportedly planning to issue an executive order to make cryptocurrency a national focus, signaling a strategic shift in U.S. crypto policy.

According to reports, the order will encourage collaboration between regulatory agencies and the crypto sector to address regulatory uncertainty and promote the industry’s growth.

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.