SEC Opposes Coinbase’s Petition on New Regulatory Framework

In a recent court filing, the U.S. Securities and Exchange Commission (SEC) strongly opposed Coinbase’s petition to mandate the creation of a new regulatory framework for cryptocurrencies. The SEC argues that such a request exceeds the court’s authority and could disrupt existing regulatory processes.

SEC Says What Coinbase Seeks is Unwarranted

Coinbase, one of the largest cryptocurrency exchanges in the U.S., had filed a petition in March against the regulator claiming it lacked “statutory authority over digital assets” and the authority the regulator has is unclear. The exchange further explained in its filing that if the SEC wants broader authority, it must ask Congress, and assert authority over any digital assets through rulemaking.

However, the SEC’s response challenges Coinbase’s position, contending that what the exchange seeks is unwarranted. The SEC argues that it is already actively engaged in regulating cryptocurrencies and has been issuing guidance and enforcement actions where necessary. The SEC maintains that its implementation of the current regulatory framework on crypto asset securities was both sensible and within its authority.

Coinbase Chief Legal Officer Paul Grewal posted on X that the SEC’s claim on the current registration process is “workable” is just a “fallacy.” He also expressed confidence that the court will properly recognize this matter for what it is.

In a nightcap to this busy day, @SECGov also filed their response to the Third Circuit APA challenge we brought to their refusal to pursue notice-and-comment rulemaking. Their basic response: "no additional explication is required to understand the Commission’s policy decision."…

— paulgrewal.eth (@iampaulgrewal) May 11, 2024

Coinbase Charged For Securities Law Violations by SEC

Coinbase has faced prolonged regulatory scrutiny and legal conflicts with United States regulators. The cryptocurrency exchange initiated its request last year by filing a lawsuit, seeking a court order that would compel the SEC to respond to its inquiry.

Later that same year, Coinbase sent a letter to the SEC, in which it alleged that the SEC had disregarded its call for establishing a regulatory framework for digital assets and had consistently avoided addressing Coinbase’s request for rulemaking. Meanwhile, the SEC charged the crypto firm for operating as an unregistered broker and exchange operator, thereby violating regulatory requirements.

Also, the regulators accused the exchange of selling investment contracts by staking customer assets, earning rewards on their behalf, and returning them. 

Is Coinbase Moving Closer to Victory?

Coinbase’s legal maneuver comes shortly after a favorable ruling in a civil lawsuit, where the United States Court of Appeals for the Second Circuit ruled in favor of Coinbase.

The ruling affirmed that secondary sales of cryptocurrencies on its platform do not violate the Securities Exchange Act, marking a significant victory for the exchange in the legal arena. Grewal also noted that the exchange will continue to push for clarity for the crypto industry and “the 52 million Americans who own digital assets. In the meantime, we are business as usual.”