SEC Rejects Coinbase's Plea for Clear Crypto Rules Amid Ongoing Legal Battle

The US Securities and Exchange Commission (SEC) dealt a blow to Coinbase on December 15, rejecting the platform's request for specialized regulations for the cryptocurrency sector.

The debate began in 2022 when Coinbase pressed the SEC to establish specific rules for the crypto sector. Alleging that current securities laws were ill-suited for the industry, Coinbase sought regulatory clarity. 

Despite repeated rejections from SEC Chair Gary Gensler, Coinbase continued its pursuit. In April 2023, facing a lack of response from the SEC, Coinbase escalated the matter by filing a lawsuit against the agency. The lawsuit sought a court order compelling the SEC to address Coinbase's petition.

‍

SEC's Ruling and Chairman Gensler's Statement

On Friday, the SEC issued its decision, communicated through a letter to Coinbase's Chief Legal Officer, Paul Grewal. The Commission asserted that the existing securities regulations and laws are applicable and effective in the crypto sector. 

Chairman Gensler supported this decision, emphasizing that current laws adequately address crypto securities markets. Gensler outlined three reasons for the denial: the applicability of existing laws, the SEC's established rulemaking procedures for crypto securities markets, and the importance of maintaining Commission discretion in setting rulemaking priorities.

Gensler referred to established principles, Howey and Reves, which have guided investment analyses for decades. These principles emphasize evaluating transactions on the basis of their economic substance rather than labels or forms. 

Gensler cited federal courts consistently applying these rules to various crypto assets, dismissing claims of impracticality.

‍

SEC's Argument Against Coinbase

The SEC contends that several crypto tokens offered by Coinbase meet the federal definition of a security. Alleging a violation of federal law, the SEC asserts that Coinbase failed to register these tokens with the agency.

Coinbase disputes the SEC's characterization, vehemently denying that the listed tokens on its exchanges are securities. The legal battle is set to intensify as Coinbase prepares to present its case before a federal judge on January 17. 

Maintaining its position against the SEC's allegations, the company will seek dismissal of the charges.