A pair of court battles between the SEC and Coinbase could determine the future of cryptocurrency trading in the United States. Coinbase is playing both offense and defense.
The decisions in these cases could end a standoff between an industry determined to disrupt traditional finance but plagued by malpractice, and regulators, who have so far tried to rein in the cryptocurrency business through ad hoc enforcement, rather than deliberate rule-making.
Notoriously, Coinbase’s relationship with the SEC has soured, as the company has become more impatient and adventurous in its offerings, and the agency has stalled on regulation, while also becoming more skeptical of regulations. cryptocurrencies.
This became more apparent in July 2022, when Coinbase filed a petition requesting that the SEC begin defining a regulatory framework for cryptocurrencies, including a definition of what would make them securities subject to SEC rules.
Said petition pointed out that other jurisdictions, such as the European Union, Australia, and the United Kingdom, were promoting regulations designed to meet the needs of the cryptocurrency market, with the idea in addition to protecting investors.
No SEC Response
On March 22, the SEC warned Coinbase about the likelihood that it would soon be subject to enforcement action.
In April, Coinbase asked the Third Circuit Court of Appeals to compel the SEC to at least respond to its then-nine-month-old petition, if only to deny it, which would open the door to a lawsuit against Coinbase. agency. “We never looked at the courts, but we always prepared for them,” says Grewal.
On the other hand, while the SEC sued Binance founder and CEO Changpeng Zhao along with his company, Coinbase’s Armstrong was not named as a defendant by the SEC.
Instead, the agency rebuked Coinbase for publicly marketing itself “as a ‘compliant’ player in the crypto-asset space,” while placing its interests in profit “above the interests of investors, and above compliance.” the law.”
On June 8, the Third Circuit gave Coinbase a little satisfaction, ordering the SEC to at least say when it would respond to Coinbase’s rulemaking petition, though the response could still be a denial.
The SEC had argued in May that Coinbase had no right to compel it to act on the petition and that it was still considering the matter, making its silence “entirely reasonable.”
However, after the Third Circuit issued its order, the SEC reluctantly asked for 120 more days for SEC staff to make a recommendation to commissioners on Coinbase’s petition. This week, the Third Circuit gave the SEC until October 11 to inform the court.
What Lies Behind the Regulations
Cryptocurrencies have proven to be a dangerous place for investors, especially small ones, with hacks, counterfeit coin offerings, and outright theft plaguing the sector.
Last year, a record for cryptocurrency hacks was broken, according to Blockchain analytics firm Chainalysis, with $3.8 billion worth of assets stolen.
More than $20 billion worth of cryptocurrencies were received by illicit addresses, the company added. This was 0.24% of all cryptocurrency transactions, twice as many as in 2021.
The SEC’s lawsuit alleges that Coinbase made billions of dollars by “illegally facilitating the buying and selling of crypto-asset securities” by interweaving the “traditional services of an exchange, a broker, and a clearing agency” without registering with the government to provide those functions.
As a result, the lawsuit alleges, the company “deprived investors of important protections.”
By Marina Meza
