In a pivotal turn of events in the world of cryptocurrency regulation, leading U.S. crypto exchange Coinbase has taken a bold stance against the U.S. Securities and Exchange Commission (SEC). Early Thursday, Coinbase filed its response to an SEC lawsuit, arguing that the regulator has overstepped its boundaries and violated due process rights.
The SEC initiated legal action against Coinbase at the start of June, contending that a dozen of the cryptocurrencies offered on the exchange’s wallet or trading platforms constitute unregistered securities. In a move that shakes up the regulatory landscape, Coinbase has countered by asserting that these cryptocurrencies do not meet the criteria of investment contracts, and are therefore outside the realm of securities.
Coinbase has articulated similar viewpoints previously through tweets and blog posts. However, the Thursday filing delves deeper into the exchange’s position, arguing that the digital assets traded on its secondary market platform are not tied to any contract-based arrangements sold by a promoter. The filing references the landmark Supreme Court’s Howey case to substantiate its argument.
Further reinforcing its stance, Coinbase maintains in the filing that the issuers of these tokens do not owe any obligations to investors. “Because no such obligations are carried in the transactions over Coinbase’s secondary market exchange, and because the value that Coinbase purchasers receive through these transactions inheres in the things bought and traded rather than in the businesses that generated them, the transactions are not securities transactions,” the filing contends.
Coinbase continues its argument, citing that the current SEC Chair, Gary Gensler, has changed his stance on the regulator’s authority over crypto between assuming office in April 2021 and mid-2022. The filing goes on to highlight Coinbase’s efforts in seeking regulation, while noting the burgeoning Congressional interest in cryptocurrency regulation.
The crux of Coinbase’s lawsuit response asserts a breach of due process rights and an alleged overreach by the SEC. “Even were the SEC correct that the assets and services it identifies are within the scope of its existing regulatory authority, this action must be dismissed on the independent grounds that it violates Coinbase’s due process rights and constitutes an extraordinary abuse of process,” argues the filing.
The document further articulates that Coinbase has been compliant with multiple overlapping regulatory bodies and has adhered to the public and limited formal guidance from the SEC and the courts. Moreover, it underscores Coinbase’s pleas to the SEC for clarity on the application of securities law to the digital asset industry, in light of what the exchange perceives as a changing SEC perspective on its own authority.
The final blow of the filing criticizes the SEC’s approach, claiming the regulator has chosen enforcement actions over rulemaking.
As this groundbreaking case continues to unfold, the result will have far-reaching implications for the burgeoning field of cryptocurrencies and their regulatory landscape. Coinbase’s audacious defense is emblematic of the growing tension between crypto enterprises and traditional financial regulators, as both grapple with defining the boundaries in this rapidly evolving industry.
