CareCredit - Women's Health April 2024

Coinbase and SEC Prepare for Courtroom Crypto Showdown

SEC and cryptocurrency

America’s largest cryptocurrency exchange is scheduled to face the country’s securities regulator in court.

And at Coinbase’s hearing on Wednesday (Jan. 17), the company will reportedly argue that the U.S. Securities and Exchange Commission (SEC) should abandon its case, as the tokens traded on the exchange are not the same as securities.

That’s according to a report by Reuters, citing a source familiar with the case and court filings. The report notes that the case will likely have larger ramifications for the digital asset sector, as it could clarify the SEC’s role in regulating the industry.

The report says Coinbase plans to make the chief argument it has relied on in past filings, one used by other crypto companies: that the SEC is overstepping its authority and the assets it lists for trading are different from regulated products like stocks and bonds.

PYMNTS has contacted Coinbase for comment but has not yet received a reply.

The SEC sued Coinbase last June, accusing the company of allowing the trading of 13 cryptocurrencies that should have been registered as securities, thus operating as an illegal securities exchange.

PYMNTS wrote in June that the suits against Coinbase and fellow crypto company Binance — filed the day before the Coinbase case — marked a “sharp escalation of the SEC’s efforts to rein in the crypto industry.” (Binance, like Coinbase, disputes the SEC’s allegations and has said it will defend itself in court.)

It was an instance, that report said, of the regulator deciding “that after a year full of fraudulent evaporations and disastrous bankruptcies as exemplified by the November blowup of the crypto exchange FTX and the rapid fall from grace of its founder, Sam Bankman-Fried, innovation run amok might be worth stifling.”

The case against Coinbase is part of the SEC’s larger “forever war” against cryptocurrency, as a Wall Street Journal (WSJ) report put it late last month.

That report noted that while the SEC has been attempting to regulate crypto since 2017, it was only when current Chairman Gary Gensler became head of the regulator that the commission embraced its current strategy, focusing on major exchanges that sell coins to the public.

The SEC has a “pretty unblemished record” of enforcement against crypto firms, Hilary Allen, a professor at American University College of Law, told the WSJ.

And because courts are unlikely to dismiss major enforcement cases this early, the report said, it is likely that the SEC/Coinbase battle will stretch into 2025.