- Coinbase claims the SEC’s refusal to create new crypto rules hinders the company’s ability to comply with U.S. regulations.
- The SEC argues that existing regulations are sufficient for crypto companies, denying the need for a new rulemaking framework.
- A Philadelphia court is hearing arguments from both Coinbase and the SEC, marking a critical clash over cryptocurrency regulation.
Coinbase, the largest cryptocurrency exchange in the U.S., is urging a federal court to overturn the Securities and Exchange Commission’s (SEC) rejection of its petition for new rulemaking. This legal clash highlights the ongoing struggle between crypto firms and U.S. regulators over how to regulate the growing digital assets industry.
In a Philadelphia federal appeals court on Monday, Coinbase argued that the SEC has failed to provide clear guidelines on how crypto firms can comply with U.S. securities laws. The company contends that the current regulatory framework, designed for traditional securities, is not suitable for the evolving cryptocurrency sector.
Coinbase Challenges SEC’s Rulemaking Process
Coinbase’s petition, submitted in 2022, called on the SEC to create new rules specifically tailored to digital assets. The exchange is seeking clarity on the conditions under which a digital asset is classified as a security. Additionally, Coinbase is pushing for a new market structure compatible with cryptocurrencies, arguing that this is essential for businesses in the industry to operate effectively.
However, in December 2023, the SEC formally denied Coinbase’s request for rulemaking. The agency maintained that the current regulatory framework is adequate, despite Coinbase’s claim that it is “unworkable” for the crypto sector. In response, Coinbase filed a lawsuit, seeking to have the decision overturned by the court.
SEC Defends Current Regulatory Approach
Eugene Scalia, the attorney representing Coinbase, argued that the SEC has acted “arbitrarily and capriciously” by failing to offer more specific guidance on how the company can register and comply with existing regulations. He emphasized that this lack of clarity has made it challenging for Coinbase to operate within the confines of U.S. law.
On the other hand, SEC attorney Ezekiel Hill defended the agency’s stance, asserting that Coinbase is not entitled to new rules simply because the current ones do not fit its business model. Hill argued that the SEC has no obligation to rewrite its regulations to accommodate the cryptocurrency industry.
Broader Impact on the Crypto Sector
The case is a significant moment in the broader tug-of-war between U.S. regulators and the crypto industry. The SEC has repeatedly stated that most cryptocurrencies should be considered securities and fall under its regulatory jurisdiction. This has led to numerous enforcement actions, including lawsuits against several crypto companies, such as Coinbase, for listing tokens the SEC claims should be registered as securities.
The outcome of the case could have profound implications for the regulatory environment surrounding cryptocurrencies in the U.S. The three-judge panel is expected to weigh whether the SEC has acted appropriately in denying Coinbase’s request and how the agency should approach crypto regulation moving forward.
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