Coinbase Petitions U.S. Appeals Court to Rule on Crypto Trading and Securities Laws
Coinbase has filed a petition with the U.S. appeals court to determine whether the crypto trading activity on its platform should be subject to securities laws. The popular cryptocurrency exchange is seeking clarity on how to treat the secondary trading of digital assets within the legal framework.
In their court filing on Tuesday, Coinbase’s lawyers urged the Second Circuit Court of Appeals to hear their case, stating that it is the best opportunity to address the fundamental legal question surrounding digital asset trading. They emphasized the importance of defining clear rules for the multi-trillion-dollar crypto industry, which impacts consumers, financial institutions, and lower courts in need of guidance.
The exchange argued that crypto trading on its platform should not be classified under federal securities laws, as secondary crypto transactions do not meet all the criteria of the Howey test. According to Coinbase, the anonymous nature of the bid-ask system on its platform eliminates the existence of a common enterprise between buyers and sellers.
Following the SEC’s lawsuit against Coinbase in June 2023 for allegedly operating as an unregistered securities exchange, broker, and clearing agency, the Southern District of New York issued a stay in the case. This allowed Coinbase to appeal to a higher court for further clarification on the matter.
Despite the district court judge’s initial denial of Coinbase’s motion to dismiss the SEC’s lawsuit, citing a plausible argument by the SEC, the case was escalated to the Second Circuit for guidance. The SEC’s enforcement action against Coinbase will be put on hold as the exchange seeks clarification from the appeals court.
On the same day as Coinbase’s petition, the SEC announced the formation of a crypto task force under the leadership of Acting Chair Mark Uyeda and Commissioner Hester Peirce. This move signals a shift away from the agency’s previous enforcement-focused approach to crypto regulation under former Chairman Gary Gensler.
The SEC acknowledged the need for clarity and practical solutions in regulating the crypto industry, aiming to create a more innovation-friendly and fraud-resistant environment. The agency’s new direction suggests a proactive approach to crypto regulation, moving beyond reactive enforcement actions.