Digital asset exchange Coinbase has submitted its final argument in a lawsuit against the Securities and Exchange Commission (SEC). The lawsuit challenges the SEC's rejection of Coinbase's request for clear rules tailored to the digital asset industry. Coinbase argues that the SEC's vague response and inconsistent enforcement harm the industry.

Key Points in Coinbase's Argument

Central to Coinbase's case is a single contentious sentence from the SEC's denial. The SEC simply "disagreed" with Coinbase's concerns about the current rules' practicality for digital asset firms. According to Paul Grewal, Coinbase’s Chief Legal Officer, this brief dismissal lacks thoughtful reasoning. Grewal asserts, “The SEC’s order must be overturned for this fundamental reason alone.”

Coinbase's argument highlights a worrying pattern in the SEC's actions. The agency demands compliance based on broad interpretations of its authority but fails to provide clear guidelines. Instead, the SEC aggressively litigates against companies for not adhering to these unclear rules.

“This behavior seems aimed at destroying an industry by making impossible demands and then punishing those who can't meet them,” the brief states. Grewal further explains the wider implications of the SEC's stance. The SEC, he argues, doesn’t aim to facilitate compliance but rather to dismantle disfavored industries.

“The SEC treats its rules as tools for dismantling industries rather than aiding compliance with federal laws,” Coinbase argues. The SEC points to its many enforcement actions as evidence that existing rules are workable, but Coinbase counters that these actions are part of a broader effort to crush the digital asset industry. “They are used as blunt instruments—intentionally,” Coinbase claims. The brief also highlights the SEC's inconsistent approach to digital assets over time.

Changing Views of SEC Chair Gary Gensler

SEC Chair Gary Gensler’s stance has shifted from acknowledging the lack of clear regulations for crypto exchanges in 2021 to claiming extensive regulatory authority a year later. Furthermore, the SEC approved Coinbase's public listing in 2020 without suggesting its business model was unlawful. Now, the SEC is suing Coinbase, alleging those same practices are illegal.

Coinbase emphasizes that the SEC's changing positions and inconsistent actions have created confusion and uncertainty. For instance, Bitcoin and Ether are not considered securities, but the SEC hasn't explained why other digital assets are treated differently. This inconsistency is evident in the SEC’s selective targeting of tokens in its enforcement actions.

The SEC’s use of a vague “facts and circumstances” standard to determine whether digital assets are securities is another major issue. Coinbase argues this standard is too vague and doesn’t offer clear guidance. “The SEC has never clearly explained why Bitcoin and Ether are treated differently from other tokens it claims are securities,” Coinbase states.

Coinbase argues that proper rulemaking is the best way to resolve these issues. Rulemaking would force the SEC to clearly outline its regulatory approach, allow for public input, and ensure judicial review before enforcement. This process would provide the clarity and fairness the digital asset industry needs.

Conclusion

Coinbase’s final argument stresses the need for judicial intervention. The company asks the court not only to nullify the SEC’s order but also to require the SEC to start formal rulemaking. “Only a court order forcing the SEC to begin rulemaking will end its arbitrary actions,” the brief concludes.