Coinbase urges federal court to compel SEC to clarify cryptocurrency regulations

Coinbase urges federal court to compel SEC to clarify cryptocurrency regulations

Coinbase has appealed to a federal appeals court in Philadelphia, urging it to pressure the U.S. Securities and Exchange Commission (SEC) to establish clearer regulations for the cryptocurrency industry. The company contends that the SEC's current approach makes it challenging for them to operate within the law.

During the hearing, Eugene Scalia, Coinbase’s attorney, described the SEC's actions as “arbitrary and capricious,” asserting that the agency has failed to provide necessary guidance on how to register and comply with U.S. laws regarding cryptocurrencies. Coinbase initially sued the SEC last year, seeking a framework that would clarify when cryptocurrencies should be classified as securities. However, the SEC dismissed these claims in December, maintaining that existing regulations are adequate.

Scalia informed a panel of three judges that the SEC had offered “zero explanation” for denying Coinbase's previous requests. He criticized the agency for taking enforcement actions against crypto service providers without providing clear regulations.

Ezekiel Hill, representing the SEC, countered that the agency already has sufficient regulatory measures in place and is not obligated to create new rules for the crypto sector. He emphasized that Coinbase’s desire to modify its business model does not warrant changes to the existing regulatory framework.

One judge raised concerns about the uncertainties crypto participants face in complying with regulations, questioning whether they could be penalized without clear guidelines. Hill reiterated that the SEC is following the Howey test as defined by the U.S. Supreme Court, asserting that while a digital asset itself may not be a security, it can be part of an investment contract.

Critics of the SEC have pointed out its lack of a clear regulatory framework for cryptocurrencies, prompting a coalition of seven U.S. states to challenge the agency on this matter, seeking greater clarity for the industry.