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Coinbase Seeks Court Intervention for SEC Crypto Regulation Clarification

Coinbase has filed a lawsuit against the SEC, seeking clearer crypto regulations and prompting questions about token classification and asset custody while navigating increased regulatory scrutiny.

Coinbase logo
Coinbase logo

Cryptocurrency exchange Coinbase filed a lawsuit against the Securities and Exchange Commission (SEC) on Monday, requesting a federal court to force the SEC to provide clearer crypto regulations. Coinbase submitted its "petition for rulemaking" in July, urging the SEC to establish rules for digital asset securities and answer 50 specific questions related to their regulatory treatment.

Questions Raised on SEC's Token Classification and Asset Custody

The questions put forward by Coinbase include inquiries about the SEC's methodology for classifying tokens as securities and issues concerning asset custody and trading crypto asset securities on SEC-regulated exchanges. According to the Administrative Procedure Act, the SEC must address the petition within a reasonable timeframe, which Coinbase believes has already elapsed after nine months without a response.

Coinbase's petition argued that clearer regulations on digital asset securities would benefit U.S. capital markets and encourage more efficient capital allocation. Although SEC Chairman Gary Gensler has claimed that existing regulations are sufficient for managing crypto under securities laws, Coinbase may challenge the SEC in court if new rules are not established. The exchange's push for regulatory clarity remains on hold until a response is received.

Gary Gensler
Gary Gensler

SEC and CFTC Increase Scrutiny of Digital Assets Firms

The petition was filed as the SEC accused nine tokens available on Coinbase of being unregistered securities. This challenge comes amidst a regulatory crackdown in the U.S., with agencies like the SEC and the Commodity Futures Trading Commission (CFTC) intensifying their examination of digital asset firms. In February, cryptocurrency exchange Kraken settled with the SEC over alleged securities law violations, resulting in a $30 million fine and termination of its staking-as-a-service program for U.S. clients.

Coinbase Explores Expansion and Diversification Amid Regulatory Pressure

Coinbase is exploring opportunities to expand outside the U.S. and diversify its revenue sources as it faces increased regulatory pressure. The company reported a $2.6 billion loss in 2022, compared to a $3.6 billion profit in 2021. Analysts from JPMorgan have warned that regulatory actions could hinder Coinbase's shift to services such as staking and custody. The exchange's first-quarter earnings report, scheduled for May 4, is expected to provide insight into the state of the digital assets industry.