Coinbase's Legal Action Against The SEC Continues After Rulemaking Petition Denied

The SEC claims existing laws cover the crypto sector adequately.

When will the US crypto industry gain the clarity it needs?

The US Securities and Exchange Commission has rejected Coinbase's demand for regulatory clarity in the digital asset space, claiming that existing securities laws adequately cover crypto assets.

Coinbase immediately responded by challenging the regulator's latest move in the long-running battle in the courts.

"Sufficient Authority"

The SEC continues to claim that existing laws provide enough clarity to regulate digital asset businesses, despite Coinbase and numerous other companies complaining that they do not have a framework that is fit for purpose within which to operate. The SEC has largely relied on enforcement actions to provide clarity to date. In other words, crypto companies do not know what they are doing wrong until it's too late and they are charged.

SEC Chair Gary Gensler posted a link to the SEC's full response on X, summarizing the decision with three justifications:

  • Existing laws apply to crypto
  • Rulemaking is under way in several areas
  • The SEC should have autonomy to make rules as it sees fit

Stonewalling

The SEC has previously stated that it might take years to develop a full regulatory framework. This statement reiterates that the agency plans to move ahead at its own speed, no matter what the cost to US crypto businesses.

I disagree with the petition’s assertion that now is the right time for the regulatory action it suggests. The Commission and its staff are currently pursuing numerous undertakings applicable to crypto asset securities and intermediaries, and the Commission’s assessment of whether and, if so, how to alter the existing regulatory regime may be informed by the results of these initiatives. 

Coinbase had anticipated this outcome, and has already filed a new challenge to the SEC's denial. Two particular points in Coinbase Chief Counsel Paul Grewal's X thread are noteworthy.

One is that two of the five SEC commissioners did not agree with the majority decision. This has been a pattern in previous enforcement actions made by the regulator (notably against Stoner Cats).

SEC Takes On Stoner Cats
The project team settled the suit for $1 million and agreed to destroy all NFTs they hold.

The other is that the CFTC has recently indicated that many cryptos are commodities, not (as the SEC claims) securities. There is the broader picture of regulatory land-grab here, in a context of confusion and competition.

The saga has a long way yet to run. While it does so, regular crypto businesses and users remain in the dark.


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