In a highly anticipated response to Coinbase’s request for action, the U.S. Securities and Exchange Commission (SEC) made its stance clear, rebuking the need for immediate crypto rulemaking while seeking to deny Coinbase’s petition. The move has generated significant industry concern and highlights the ongoing regulatory challenges faced by the crypto market.
The Regulatory arm’s response comes at a time when stakeholders are seeking clarity and guidance to foster innovation while ensuring consumer protection.
SEC throws down gauntlet: Rejects Coinbase’s crypto regulation plea
The ongoing regulatory clarity battle is at an all time high. The situation between the SEC and crypto exchanges such as Coinbase has become a play of focus for investors, critics, and regulators. How did it start? How did the crypto market get here?
On April 25, the largest crypto exchange in the United States filed a lawsuit against the SEC, seeking clarification on crypto regulations. The company filed a petition for a writ of mandamus, which mandates the Security regulation entity to respond promptly.
In the filing, Coinbase requests that the regulatory arm clarify officially “which digital assets must be registered as securities.” In addition, the court should require the SEC to respond with a simple “yes” or “no” to the question of whether it will regulate the cryptocurrency industry.
Following that filling, the SEC has officially responded to Coinbase in the following manner. According to court documents filed on May 15, the regulatory entity argued that it is not required to meet the requirements specified by Coinbase in its petition, and that the company has requested a complex set of reforms and rulemaking in an unreasonable amount of time.
In addition, the regulatory arm asserted that Coinbase has no right to mandamus, a court order requiring a government agency to perform specific duties. The securities regulator has argued that mandamus is a “extraordinary remedy” and that Coinbase “does not and cannot demonstrate a right” to relief.
Perhaps recognizing this, Coinbase instead asserts that this Court should compel the Commission to act on Coinbase’s recently filed rulemaking petition […] But no statute or regulation requires the Commission to take such action on a specific timeline.
The SEC
Coinbase’s legal team voice their take
Paul Grewal, the chief legal officer of Coinbase, stated in a Twitter thread that the filing may be the first time the regulator has explained its stance on whether or not the Security regulating arm should establish regulations for the crypto industry. In addition, he stated that there were still numerous points that required clarification.
Grewal argued that the entity’s response demonstrated that the Commission would continue to substitute enforcement actions for rulemaking. The regulator informed the court that the rulemaking process could take years, and they are in no hurry.
The legal counsel for Coinbase further stated that the Commission said that its Chair Gary Gensler’s public statement should not be interpreted as “formal guidance or policy statements from the SEC.”
Chair Gensler has made multiple public pronouncements concerning the crypto market, categorizing all digital assets save Bitcoin (BTC) as securities and highlighting crypto firms’ noncompliance.
Some proponents of the crypto industry argue that the regulating arm has been especially active under Gary Gensler’s leadership. The entity has initiated multiple actions against crypto projects and exchanges. Many have decided not to challenge the entity’s actions, including Kraken, which reached a settlement over its staking service.
However, Coinbase has made it clear that it possesses both the resources and the determination to press for regulatory clarity.
Coinbase initially filed suit in March 2023 in response to a Wells Notice received by the exchange. The Notice, which precedes formal regulatory enforcement action by the SEC, related to problems the agency discovered with the exchange’s Wallet and Prime services.
Grewal stated in a tweet that Coinbase will use the opportunity to formally respond to the SEC’s letter next week. It remains to be seen what Coinbase’s future measures will be and whether the writ of mandamus would be advantageous to the crypto industry.
