Coinbase Appeals to Define Crypto Trades: Are They Securities or Asset Sales?

Coinbase has intensified its legal battle with the Securities and Exchange Commission (SEC), petitioning a U.S. appeals court to address whether secondary market cryptocurrency transactions constitute securities. In its January 21 filing with the Second Circuit Court of Appeals, the crypto exchange emphasized the pressing need for clear regulations governing digital assets, describing the issue as one of “immense importance to the crypto industry.”

Seeking Clarity for the Crypto Industry

“This case offers an ideal opportunity to resolve the debate and establish uniform rules for a multi-trillion-dollar industry,” Coinbase argued, stressing the current regulatory inconsistency across courts and the lack of clear legislative or administrative oversight.

The legal tussle between Coinbase and the SEC began in June 2023 when the regulatory body accused the exchange of operating as an unregistered securities exchange, broker, and clearing agency. Coinbase, however, contends that its platform facilitates asset sales rather than securities transactions, as there are no contractual obligations between buyers and sellers after a trade is completed.

The Core Argument: Securities vs. Asset Sales

In its latest appeal, Coinbase asserted that cryptocurrency trades on its platform differ fundamentally from securities transactions. “Buyers do not gain any rights against the issuer of the digital asset, unlike traditional securities such as stocks or bonds,” Coinbase’s legal team stated. Furthermore, the exchange noted that the anonymous nature of crypto trading eliminates any ongoing commitments between transacting parties, further distancing such trades from the securities framework.

This legal question has already divided several district courts, with conflicting rulings in cases involving Ripple Labs and Terraform Labs. U.S. District Judge Katherine Failla recently acknowledged this inconsistency, granting Coinbase the right to an interlocutory appeal on January 7. Coinbase now argues that this appeal represents the best chance to resolve the long-standing ambiguity around the classification of digital asset trades in secondary markets.

Coinbase’s appeal underscores the industry’s urgent need for clarity in regulatory frameworks to ensure consistent rules across jurisdictions. The outcome of this case could set a critical precedent, shaping how digital asset trading is regulated in the United States.