As revealed by the companyโs Chief Legal Officer, Paul Grewal, the cryptocurrency exchange has filed with the court a response to arguments the SEC had filed against Coinbaseโs petition.
The SEC vs Coinbaseย Cryptoย exchange cryptocurrency case
The case involving the Unitedย States Government agency that regulates the financial security markets and the Unitedย States exchange 1st surfaced in February, when the companyโs CEO raised theย challenge regarding the SECโs states against cryptocurrencies.ย
Theย challenge raised by the agency isย theย factย that numerous digitalย currencies would be unregistered securities, i.e., financing contracts that can only be traded if they individually obtain explicit SEC approval.ย
In the Unitedย States, the SEC is contending with the CFTC for oversight of cryptocurrency markets, since the CFTC deals with commodities and the SEC with securities. Bitcoinย (BTC) is commonly considered a commodity, while there are still doubts about other cryptocurrencies.ย
This is the underlying issue, but another specific one against Coinbaseย Cryptoย exchange was added in March: the exchange received a notice from the agency warning it precisely that it had identified potential violations of Unitedย States security laws.ย
Althoughย while a similar case against another Unitedย States cryptocurrency exchange, namely Kraken, ended in a settlement, Coinbaseย Cryptoย exchange instead decided to take the situation head-on and get to theย lowest of it.ย
It must be kept in mind that Coinbaseย Cryptoย exchange is a publicly traded company, so it has specific obligations to shareholders.
Inย reality, it countersued the SEC, accusing it of failing to give clear guidance on what regulations should be applied, and how they should be applied.ย
The cryptocurrency regulatory framework in the US
The underlying challenge isย theย factย that thereย is no specific regulatory framework in the Unitedย States regarding cryptocurrencies.
Forย instance, the European Union just got an ad hoc regulation (MiCA), but in the Unitedย States the old regulations designed for traditional markets still have to be applied.ย
And, in theory, the regulations that must be met are in place in the Unitedย States, but they are outdated regulations compared to the innovations brought by digitalย currency technology.
Coinbaseย Cryptoย exchange had addressed a petition to the SEC aย yearย ago asking the Unitedย States agency that oversees security markets to specify what regulations should apply to cryptocurrency markets, and how they should be complied with.
The SEC did not respond at the time, perhaps partly because it was unable to give company and clear answers, but in March it warned Coinbaseย Cryptoย exchange that it believed they were not complying with the proper regulations.
It sounds rather odd that the SEC cannot tell Coinbaseย Cryptoย exchange what regulations it should be complying with, except to thereafter accuse the exchange of not complying.
Nonetheless, it is no coincidence that the Third Circuit court agreed with Coinbaseย Cryptoย exchange, issuing an order directing the SEC to file a response to that petition.ย
Crypto: Coinbaseย Cryptoย exchange responds to the SEC
For now, the SEC has not isย still responded by stating precisely what regulations should be enforced, and how, and thus has not isย still disclosed to Coinbaseย Cryptoย exchange what regulations it allegedly violated.
For this reason, the exchange is attemptingย to push for the answers it requires toย beย ableย to operate within the law.
The response sent to the court yesterday adds some interesting elements to the story.
Stating that the SEC has not even communicated its reasons for ignoring last yearโs petition, Coinbaseย Cryptoย exchange goes so far as to speculate that the agencyโs seemingly wait-and-see attitude may essentially be hiding a specific strategy.
Nonetheless, the agency acknowledgesย that it has received as numerous as 5 regulatory petitions related to digital assets in the past 5 years, and has not acted on any of them.
Furthermore, the document filed yesterday by the exchangeโs lawyers outlines that neither the SEC nor Coinbaseย Cryptoย exchange has found a single case in which a court has approved such a lengthy delay for such action, all the more so when a Government agency threatens a lawsuit against the same regulatory petitioner.
The hypothesized strategy
The hypothesis that appearsย to be emerging from this affair isย theย factย that the SEC is attemptingย to lobby on plentyย of fronts to try to convince Congress to pass new regulation inย particularย on cryptocurrencies.ย
Toย putย itย anotherย way, it is as if it is attemptingย to attract to light, in the most public and obvious way possible, the major limitations of theย present situation.
The thing is, the SEC cannot legislate, but neither can it decide what is a security and what is not.
It should be Congress that legislates, and it should be the courts that rule on the nature of digitalย currencies, examining digitalย currencies one by one.
Coinbaseย Cryptoย exchange would practically find itself squeezed betwixt of this all-internal struggle within Unitedย States institutions, with the SEC attemptingย to contend with the CFTC for control of the cryptocurrency markets, while at the same time attemptingย to more or less understandably spur Congress to legislate on the matter.
The only ones who would suffer would be the operators of the cryptocurrency markets, and inย theย end the very investors the SEC itself is supposed to protect.
