The United States Court of Appeals for the Third Circuit has ordered the U.S. Securities and Exchange Commission (SEC) to clarify its stance on a rulemaking petition from Coinbase, the only publicly-traded cryptocurrency exchange in the United States. The Court asked SEC to respond within a week.
This order comes in response to Coinbase’s Administrative Procedure Act challenge filed in April, which sought to compel the SEC to respond to its 2022 petition for formal rulemaking in the digital assets sector.
Coinbase’s petition, pending since July, has been a clarion call for clearer regulatory guidelines for the burgeoning cryptocurrency industry in the U.S. The exchange has asked the SEC to answer 50 specific questions concerning the regulatory treatment of certain digital assets, including how tokens are classified as securities.
Paul Grewal, Coinbase’s Chief Legal Officer, has been vocal about the need for regulatory clarity, stating that the SEC’s response to their petition is overdue. He argues that the SEC’s silence has led to uncertainty, with Coinbase and other crypto companies facing potential regulatory enforcement actions without a clear understanding of how the law applies to their businesses.
Coinbase vs. SEC
The SEC’s lack of response to Coinbase’s petition has not been without consequence. The regulatory body is suing Coinbase over allegations that it operates an unregistered securities exchange. Grewal has expressed his belief that the SEC’s litigation against Coinbase would only have proceeded if the regulator had already decided to deny their petition for rulemaking.
Furthermore, the SEC’s actions against other crypto entities have raised eyebrows. Recently the commission sued Binance on allegations that it has been offering unregistered securities and staking services to the general public, and in February, the SEC settled with Kraken, another crypto exchange, over its “staking-as-a-service” program, which the SEC claimed was a security under its oversight. The SEC’s conduct was criticized by its own Commissioner, Hester Peirce, who labeled it as neither efficient nor fair.
In the same month, the SEC and the New York Department of Financial Services ordered Paxos, the U.S. dollar-pegged stablecoin Binance USD BUSD issuer, to cease minting and issuing the token. Amidst this regulatory crackdown, Democratic Massachusetts Senator Elizabeth Warren announced the formation of an “anti-crypto army” as part of her Senate re-election campaign.
In response to the increasing hostility towards the crypto industry in the U.S., Coinbase moved part of its operations elsewhere. In April, Coinbase received a license to operate in Bermuda. Also, its Derivatives Exchange is expected to launch Bitcoin and Ethereum Futures soon.