Coinbase asks court to force SEC to release crypto rules

abdelaziz Fathi

Coinbase is pressing for regulatory clarity from the Securities and Exchange Commission (SEC), arguing in a recent appeal that the SEC has been stalling on providing new rules for the cryptocurrency industry.

Coinbase

In a letter to the U.S. Court of Appeals for the Third Circuit, the crypto exchange’s lawyer, Eugene Scalia, insisted that the court’s intervention is necessary to prompt action from the SEC. He also accused the agency of prolonging the process without any meaningful updates.

The letter highlighted the SEC’s lack of progress since Coinbase’s initial petition for rulemaking, which sought clear regulations for digital assets. Despite the SEC’s promise of a further report by December, Coinbase sees this as mere procrastination.

Coinbase’s legal struggle began after suing the SEC in April, following a petition last year for the regulator to create digital asset-specific regulations. The SEC’s response has been seen as sluggish by Coinbase, with the regulator asking for a four-month period in June to address the exchange’s request.

Meanwhile, the SEC has launched a lawsuit against Coinbase, alleging that the exchange operates as an “unregistered broker, exchange, and clearing agency,” which constitutes a breach of U.S. securities laws. This move mirrors a similar lawsuit against many crypto platforms including Binance, the world’s largest cryptocurrency exchange.

A key point in the SEC’s lawsuit is that crypto tokens traded on Coinbase qualify as securities under U.S. law, which would subject their trade to strict regulatory controls. The SEC is also targeting Coinbase’s “staking-as-a-service” feature, arguing it directly infringes on securities regulations.

Central to the dispute is the application of the Howey test, a legal standard that determines whether an instrument qualifies as a regulated security. However, lawyers representing America’s largest crypto exchange allege that the SEC exceeded its jurisdiction by labeling certain cryptocurrencies listed on the exchange as securities.

Coinbase claims that the SEC’s current definition of what constitutes a security is overly broad. The exchange argues that many of the cryptocurrencies it offers do not fall within the regulatory domain of the SEC. The filing elaborates that the SEC seems to have stretched the boundaries of its authority, extending its jurisdiction “over essentially all investment activity.” According to Coinbase, such an overarching role should ideally be reserved for Congress based on the major questions doctrine.

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