Are cryptocurrencies securities products? The protracted legal battle over cryptocurrency regulation in the United States continues. But judging from the latest situation, the balance of victory seems to be tilting towards the exchange.
A federal judge on Wednesday expressed doubts about the Securities and Exchange Commission's (SEC) claims, noting that upholding the SEC's claims could inadvertently expand the definition of securities to areas such as collectibles that do not fall within the SEC's purview. Scope of supervision.
Judge questions SEC's definition of securities as too broad
On Wednesday local time, U.S. District Judge Katherine Polk Failla presided over a hearing on Coinbase’s request to dismiss the SEC’s civil lawsuit.
The SEC sued Coinbase in June last year, calling it an unregistered securities broker. Coinbase submitted a motion to dismiss (MTD) in August, arguing that the SEC did not have the legal authority to regulate cryptocurrency exchanges.
During the five-hour hearing, Failla seemed unconvinced by the SEC's argument, telling SEC attorneys in court:
"I would like to understand how your criteria do not address the collectibles market or commodities. I am concerned that your arguments are too broad."
Failla did not rule at the end of Wednesday's hearing, but a decision is expected in the coming months. If she allows all or part of the case to proceed, the lawsuit could begin next year.
Coinbase: Speculating in currencies is like buying baseball cards or Beanie Babies, it is two different things from securities
The impact of this case is quite significant. The legal standoff between Coinbase and the SEC is a critical moment in cryptocurrency regulation and compliance. The outcome of the case could set a precedent that affects how digital assets are regulated in the United States and around the world.
Moreover, the outcome of the case will also greatly affect Coinbase's operations. Industry observers believe that if Coinbase is recognized as a securities broker, it will be forced to reorganize a number of services, such as trading, marking, and custody. The company may face major operational and financial challenges and lose up to 30% of its revenue.
When suing large cryptocurrency exchanges such as Binance and Coinbase, the SEC cited the 1946 Supreme Court case SEC v. WJ Howey Co., which provided a definition for investment contracts, which are different from stocks and A type of securities product called bonds.
The SEC believes that most cryptocurrencies meet the definition of an investment contract. This means Coinbase cannot trade cryptocurrencies without following the same rules as the New York Stock Exchange or Wall Street brokerages.
One of Coinbase’s defenses against the SEC’s charges is the so-called “major questions doctrine,” which requires restraining U.S. federal agencies from promulgating regulations of significant economic and political significance without clear direction from Congress. .
During Wednesday's hearing, a lawyer for Coinbase said that Congress did not give the SEC the authority to regulate cryptocurrencies, but that the SEC acted on its own. If the court accepts the SEC’s assertions in the Coinbase case, it would have “legislative implications” that would “ripple throughout the industry.”
In addition, regarding the SEC’s assertion that cryptocurrency is an investment contract, Coinbase argued that crypto assets do not come with rights such as dividends or make other contractual commitments, and therefore are not within the jurisdiction of the SEC. Transactions in the secondary market are only between individuals, and there is no explicit investment contract specific to the securities. Most cryptocurrencies are commodities, not securities, and investors may hope that a cryptocurrency will appreciate in value, much like collecting baseball cards or Beanie Babies, but that is not enough to make it a security.
Following the hearing, Citi raised its Coinbase price target from $90 to $151.
As of press time, Coinbase was up about 1% before the market opened.
