Monitors display Coinbase signage during the company’s initial public offering (IPO) at the Nasdaq market site April 14, 2021 in New York City.
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An aggressive new move in Coinbase’s
COIN
The crypto exchange asked a federal court on Monday to force the SEC to respond to its July petition, which urged the agency to define when a digital asset is considered a security and to create a regulatory framework for cryptocurrencies.
“The petition filed yesterday is quite persuasive. I expect major industry players to pile in with amicus briefs supporting Coinbase’s position,” wrote James Murphy, a securities lawyer in Richmond, Virginia, on Twitter. However, he added, there is only a “tiny chance the SEC will blink and agree to engage in rule-making.”
After last year’s request for clear rules, the agency notified Coinbase via a letter known as a Wells notice in March that it plans to sue the company for allegedly violating a range of investor-protection laws related to assets listed on its crypto exchange as well as its wallet and staking services. The SEC has also taken enforcement actions against Coinbase’s competitors Binance and Kraken.
“Regulatory clarity is overdue for our industry,” wrote Paul Grewal, Coinbase’s chief legal officer, in a Monday blog post. “Yet Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business.”
The Administrative Procedure Act requires the SEC to respond to Coinbase’s rulemaking petition “within a reasonable time.” If the SEC says no to the petition, the company would be allowed to challenge that decision in court and formally explain why rulemaking is required. The latest move by Coinbase is an attempt to deny the agency the ability to deal with the July petition by not addressing it at all.
John Deaton, a lawyer who also runs the CryptoLaw news site, filed a similar petition against the SEC in connection with a case the agency brought against payments processor Ripple. In the Coinbase action, he thinks the exchange is “on solid legal ground.” He tweeted: “The SEC does not have the law on its side, and the facts the SEC has created the last 6 years puts them on the losing side.”
A spokesperson for the Commission declined Forbes’ request for comment.
SEC Chair Gary Gensler has repeatedly asserted that additional clarity and rules aren’t necessary for his agency to do its job.
“We have a clear regulatory framework built up over 90 years,” stated Gensler during a House hearing earlier last week. The industry’s issues stem from simply not abiding by it, he suggested. “We have a whole field in crypto that understands the law, and if they are providing exchange services, broker dealer services, clearing services of crypto security tokens, they should come into compliance,” said Gensler.
While it takes on the SEC, Coinbase is also seeking to expand outside the United States, a strategy to go “broad and deep,” according to an April 19 blog post. It plans to establish “regulated entities and local operations in high-bar regulatory jurisdictions abroad to focus on international growth” and has obtained a Class F license in Bermuda that allows it to operate as a digital asset exchange and derivatives provider in the territory.
In response to a request for comment, a Coinbase spokesperson referred Forbes to the firm’s two latest blog posts.
Still, “Coinbase clearly wants to be able to operate in the U.S.” wrote Edward Moya, senior market analyst at foreign-exchange trader OANDA, in a Tuesday note. “They are hoping this lawsuit will give them the clarity a lot sooner so they can make the right business decision.”
