Crypto firms have consistently expressed the need for clearer guidelines on when the SEC considers a digital asset to be a security.
The US Securities and Exchange Commission (SEC) delivered a setback to Coinbase Global, the country’s largest cryptocurrency exchange, by denying its petition for new crypto rules in the digital asset sector. The SEC’s decision prompted Coinbase to challenge the ruling in court, marking the latest episode in the ongoing struggle between the crypto industry and the top US markets regulator.
The five-member SEC commission voted 3-2 against proposing new rules, stating a fundamental disagreement with Coinbase’s assertion that current regulations are “unworkable” for the crypto sphere. The exchange had sought regulatory clarity and a tailored set of rules for the crypto sector, arguing that existing US securities laws were inadequate.
Coinbase, in response to the SEC’s decision, filed a petition for review in court, contesting the regulatory body’s stance. The company’s chief legal officer, Paul Grewal, emphasized that there is widespread recognition within the industry that the legal landscape is not clear, and more collaborative efforts are needed to create laws and rules that benefit consumers and foster innovation in the United States.
SEC Chair Gary Gensler, supporting the commission’s decision, asserted that the existing laws and regulations are applicable to the crypto securities markets. This stance aligns with the SEC’s repeated assertion that most crypto tokens are securities and fall under its jurisdiction. The regulator has taken legal action against multiple crypto companies, including Coinbase, for listing and trading tokens that it deems should be registered as securities.
Gensler contended that Coinbase’s request for new rules essentially acknowledged the SEC’s authority over the crypto sector, a point disputed by the exchange. The SEC chair argued that the commission’s role is to address important issues presented by new technologies and innovations, emphasizing the importance of responsible regulation.
Coinbase’s disagreement with the SEC’s decision led to the company notifying a federal court of appeals in Philadelphia about its intention to seek a review. In a court filing shared by Grewal on the social media platform X, Coinbase argued that the SEC’s denial was “arbitrary and capricious” and constituted an “abuse of discretion.”
The exchange had initially pressed the SEC in 2022 to create a specific set of rules for the crypto sector, citing inadequacies in existing securities laws. In April of the same year, Coinbase sought judicial intervention to compel the SEC to respond to its petition. The court refrained from compelling the agency to act, considering the SEC’s assurance that it would respond to Coinbase’s request.
Crypto firms have consistently expressed the need for clearer guidelines on when the SEC considers a digital asset to be a security. The lack of regulatory clarity has been a source of contention between the industry and the SEC.
The Republican SEC Commissioners, Hester Peirce and Mark Uyeda, issued a joint statement expressing their disagreement with the decision. They emphasized that addressing the issues raised by new technologies and innovations is a crucial aspect of responsible regulation, and they believe the petition presented an opportunity to explore these important matters.
As the legal battle between Coinbase and the SEC unfolds, the crypto industry remains vigilant in its pursuit of regulatory clarity and a regulatory framework that supports innovation while ensuring consumer protection. The outcome of this legal challenge will likely have implications for the broader crypto sector and its relationship with regulatory authorities in the United States.