The Concept of “Current Regulations”

To understand this better, let’s rewind to July 2023 for some context. At that time, the SEC ordered Coinbase to stop trading all cryptocurrencies in its portfolio except for Bitcoin, arguing that these assets qualified as securities.

In simple terms, the SEC asserted that these assets fell under its jurisdiction, forcing Coinbase to comply with its rules.

It’s easy to imagine the repercussions had Coinbase agreed to delist over 200 of its crypto tokens. This would likely have spelled the end of cryptocurrency trading in the U.S. as we know it. Instead, Coinbase opted to turn to the courts to seek a clearer legal ruling.

A Continuation of the Status Quo?

Fast forward to December, and little has changed. Coinbase proposed another revision to SEC rules concerning cryptocurrency trading, but the proposal was largely ineffective. SEC Chairman Gary Gensler outlined three main reasons for rejecting this request:

1. The existing securities laws already govern the cryptocurrency market.
2. The SEC already oversees many crypto operations across the U.S.
3. The SEC holds exclusive authority to define its own rule-making procedures.

Gensler also referenced a 1946 case (SEC v. W. J. Howey Co.), which, without going into intricate details, provided investment contracts with more flexibility. Essentially, this decision allowed for investment agreements to adapt to various situations rather than staying fixed.

The SEC seems to be applying this ruling to the cryptocurrency markets, claiming that the same flexible oversight applies. In other words, federal securities laws are relevant to companies like Coinbase.

Potential Responses from Coinbase

For the time being, it seems the ball is back in Coinbase’s “court.” It’s crucial to remember that the SEC has previously ruled against Coinbase, particularly in litigation accusing the company of operating as an unregistered exchange…