Coinbase Files Lawsuit Against the SEC Over Regulatory Obscurity

Crypto exchange platform Coinbase is suing the Securities and Exchange Commission (SEC) over regulatory uncertainty in the digital ecosystem.

According to the court filing, Coinbase is seeking that the regulators act on its pending rulemaking petition to provide clarity for the crypto ecosystem. Simply put, Coinbase is requesting that the court issue an order compelling the SEC to respond to its inquiry.

The Genesis of the Lawsuit

Coinbase claims that the SEC has had opposing views regarding the regulation of digital assets over the years. Additionally, the company the statements and actions of the SEC even suggest that securities regulations do not apply to many digital assets.

Coinbase sighted an instance where a senior SEC staff claimed in 2018 that a digital asset “all by itself” is not a security that needs to be registered with the SEC. On the contrary, the SEC Chair, Gary Gensler recently asserts that it is “clear” that the securities rules already apply to digital assets and platforms.

Coinbase highlighted that despite Gensler’s statement, the SEC is yet to initiate any rulemaking to clarify its position on the types of digital assets that should be registered as securities.

Coinbase Vs. US Regulators

Over the years, Coinbase has been subject to regulatory scrutiny and legal battles with U.S. regulators. In 2021, the SEC threatened to sue Coinbase over its proposed crypto lending service, citing concerns over investor protection.

Furthermore, Coinbase has been chastised by regulators for failing to comply with anti-money laundering (AML) and know-your-customer (KYC) laws. The Department of Financial Services (DFS) fined Coinbase $100 million for alleged violations of AML regulations.

Most recently, the firm received a “Wells notice” from the SEC regarding some of its digital assets listed on its platform.

Coinbase Prepares Ahead

It is common for companies to prepare for potential challenges, whether they are related to the market, regulatory changes, or broader economic conditions.  

To prepare for these challenges, Coinbase is set to launch an offshore derivative trading platform in Bermuda. Notably, Coinbase’s decision may be due to the recent crises in the financial sector of the US.

The Demand for Transparent Crypto Rules

A clear crypto regulation is needed to mitigate risks, prevent illegal activities, and provide clarity to businesses and investors. Ultimately, such regulations, according to experts, should aim to balance the need for innovation and growth in the crypto space with the need to protect consumers and maintain financial stability.