Coinbase's Petition Regarding Digital Asset Rules Deemed ‘Baseless’ by SEC

Coinbase’s Petition Regarding Digital Asset Rules Deemed ‘Baseless’ by SEC

Updated: 16 May 2023

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The Securities and Exchange Commission (SEC) has filed a response to Coinbase’s recent lawsuit for new digital asset regulations. The SEC has argued that Coinbase lacks standing to sue and that it is not obligated to issue new regulations.

According to the SEC, the cryptocurrency exchange had not demonstrated the need for the agency to develop a new regulatory framework for the digital asset market. The SEC has asked the court to dismiss Coinbase’s petition, stating that the crypto exchange has not provided sufficient evidence to demonstrate the need for a new regulatory framework for the digital asset industry. The commission also clarified that it has yet to make a decision on Coinbase’s petition and is still considering the filing.

Coinbase originally submitted its petition to the SEC in July 2022, requesting guidance on digital assets. Last month, the company filed a Mandamus petition with the U.S. Court of Appeals for the Third Circuit, seeking to compel the SEC to respond to its petition amid an escalating legal battle. Coinbase also responded to an SEC Wells Notice during the same week.

The SEC Cannot Provide New Regulations Within a Short Timeframe

In its response, the SEC highlighted the complexity of considering the various paths suggested by Coinbase in its petition. The agency pointed out that Coinbase’s expectation of a response within less than a year is unreasonable, considering that it has taken up to five or 10 years for the SEC to respond to petitions in other areas in the past. The SEC also emphasized that Coinbase’s request for a new regulatory regime for crypto assets came too soon after its initial petition, which proposed significant changes to existing securities laws and regulations.

“The rulemaking petition as to which Coinbase seeks an immediate determination asks the Commission to take a series of discretionary actions to replace existing applicable securities laws and regulations with a comprehensive new regulatory regime for the trading of crypto assets that are securities,” the SEC said.

“As Coinbase’s own submissions make clear, considering the various paths it suggests is a necessarily complicated endeavor,” the agency continues.

The SEC dismissed Coinbase’s claim that a decision on the petition had already been determined as “baseless.” The commission stated that it is still considering Coinbase’s petition in the normal course of action and that it could potentially move forward with crypto-specific rules. The SEC informed the court that it has received over 1,600 “form-letter comments” and eight original comments on the matter, with Coinbase contributing three of the original comments.

Furthermore, the SEC clarified that its consideration of new rules or amendments to existing regulations does not prevent it from enforcing the current regulations. Coinbase’s argument that the commission simply needs to formalize its denial of the petition was deemed incorrect by the SEC, as no final agency action has been taken on the petition.

Overall, the SEC’s response to Coinbase’s lawsuit suggests that the regulatory agency does not believe Coinbase has standing to sue and that it is not compelled to issue new regulations specifically tailored to the digital asset industry. The outcome of this legal battle will have implications for the future of digital asset regulation in the United States and could impact the operations of crypto exchanges like Coinbase.