Coinbase has increased its efforts to encourage the Securities and Exchange Commission (SEC) of the United States to begin the process of formally establishing rules for digital assets.
In its closing brief, which was submitted on May 31, the cryptocurrency exchange requested that the appeals court order the financial regulator to initiate the process of establishing clear regulations for the emerging industry.
Approach of the SEC is being challenged by Coinbase
The enforcement strategy of the SEC is said to put cryptocurrency companies in a "Catch-22." The exchange asserts that the SEC forces firms to comply with an excessively broad interpretation of its authority while simultaneously engaging in adversarial litigation.
Coinbase contends that the SEC exceeds its authority by imposing significant policy changes through punitive measures.
Furthermore, Coinbase argues in its brief that the approach taken by the SEC is in violation of the Administrative Procedure Act (APA), which requires rulemaking for significant policy shifts. According to the brief, the inconsistent policies of the SEC regarding digital assets do not have a coherent legal standard, which makes compliance impossible for the industry.
Additionally, Coinbase made a statement saying that they have utilized the [regulation-by-enforcement] approach in order to assert broad, yet ill-defined, jurisdiction over a new and dynamic industry.
The SEC has exploited [regulation-by-enforcement] approach to assert broad, yet ill-defined, jurisdiction over a new and dynamic industry, without articulating in advance its understanding of the law through rules vetted by public comment and pre-enforcement judicial review.
Coinbase
Furthermore, Paul Grewal, the Chief Legal Officer of Coinbase, reaffirmed this position on social media, highlighting the significance of the ongoing legal battle. It was his contention that the Commission had not provided any substantial justification for its decision to reject the company's request for individualized regulations.
Grewal, on the other hand, asserted that they're exceeding its authority without proper authorization from Congress and establishing clear rules for the developing digital asset industry.
Remarkably, the SEC repeats over and over again that it is irrelevant whether or not the industry is able to comply with the rules.
Grewal makes the assertion that the SEC is determined to suffocate the digital asset industry and is refusing to provide the necessary rules that the industry has requested in order to tighten the squeeze.
The petition for rulemaking that Coinbase submitted to the SEC was submitted two years ago. In the beginning, the regulator did not respond to the petition and stated that it could not be compelled to develop particular cryptologic regulations.
Nevertheless, Coinbase and other stakeholders in the cryptocurrency industry have consistently maintained that the absence of rules is detrimental to the industry.
The outcome of this legal battle may have a significant impact on the future of digital assets in the United States, which may have implications for regulations for a number of years to come.
The crypto sector has shown support for Coinbase's efforts to clarify regulations and create a clearer path forward. Moreover, some have taken to social media platforms to express solidarity with the exchange, while others have highlighted the importance of this legal battle for the future of the industry.
Potential regulatory outcomes
If Coinbase is successful in its rulemaking petition, it could pave the way for more formal regulations within the crypto sector and potentially encourage other firms to follow suit.
Conversely, if the SEC's regulatory approach remains unchanged, it may lead to further litigation and uncertainty for crypto firms operating within the US market.
The legal battle between Coinbase and the SEC represents a pivotal moment in the evolution of digital asset regulations in the US. With both sides presenting compelling arguments, the outcome could significantly impact the future of this emerging industry.