Coinbase Appeals to Federal Court for Clearer Crypto Regulations from SEC

Coinbase Appeals to Federal Court for Clearer Crypto Regulations from SEC

Coinbase has called on a federal appeals court in Philadelphia to compel the U.S. Securities and Exchange Commission (SEC) to establish new regulations for the cryptocurrency sector. The exchange argues that the SEC's actions have made it nearly impossible for the platform to operate and comply with existing regulations.

In a recent court appearance, Coinbase attorney Eugene Scalia criticized the SEC for being "arbitrary and capricious," claiming the regulator has failed to provide guidance on registration and compliance with U.S. laws. This appeal follows a lawsuit Coinbase filed against the SEC last year, seeking clarity on the criteria for classifying cryptocurrencies as securities. The SEC denied Coinbase’s claims in December, asserting that the current regulatory framework is functional.

Scalia emphasized to the three-judge panel that the SEC has offered "zero explanation" for its previous denial of Coinbase’s requests. Instead, the agency has initiated numerous enforcement actions against other cryptocurrency service providers.

Ezekiel Hill, representing the SEC, countered that the agency already possesses sufficient regulations and is under no obligation to draft new rules. He contended that the case does not present unique circumstances to justify significant changes to the regulatory framework. Hill stated, “If Coinbase wants to operate outside the existing regulatory framework, that does not entitle them to demand alterations to fit their business model.”

During the hearing, one judge expressed concern about the lack of clarity surrounding compliance for cryptocurrency participants, suggesting that the absence of clear regulations could lead to penalties for non-compliance. Hill maintained that the SEC adheres to the Howey test established by the U.S. Supreme Court, emphasizing that while digital assets may not qualify as securities, they can still be part of investment contracts.

Critics argue that the SEC has not provided a coherent regulatory framework for cryptocurrencies. In response to these concerns, a coalition of seven U.S. states has come together to challenge the SEC over the need for clearer crypto regulations.