US-based cryptocurrency exchange Coinbase Global Inc. has been engaged in a legal battle with the US Securities and Exchange Commission (SEC). The exchange argues that the tokens traded on the exchange do not fall under SEC jurisdiction as they do not grant buyers any rights, unlike stocks or bonds.

In this article, we delve into the ongoing scrutiny faced by Coinbase and explore the implications this lawsuit has for the broader crypto industry. Coinbase is staunchly attempting to dismiss the SEC's lawsuit, which accuses the exchange of violating securities regulations.

The Great Debate: Are Digital Assets Securities?

At the heart of the matter lies the debate over how to classify digital assets as securities. This case is particularly significant for the cryptocurrency industry, as it hinges on Coinbase's plea for the dismissal of the SEC's lawsuit, which claims securities regulation violations.

Arguments from both sides

Judge Katherine Polk Failla is presiding over the case and focused on the definition of securities and the attributes of various crypto tokens traded on Coinbase, such as Solana, Cardano, and Polygon. The judge has not yet reached a verdict and further consideration is needed after the four-hour hearing. This case will have implications for the broader crypto sector in terms of the SEC's jurisdiction over digital assets.

Judge's decision pending

The Judge refrained from delivering an immediate verdict, expressing the need for further consideration after the extensive four-hour hearing. The judge's decision is expected to provide clarity on the SEC's jurisdiction over digital assets, impacting the broader crypto sector.

The origin of the legal battle

SEC's broader initiative

This lawsuit is part of the SEC's broader initiative targeting the crypto industry. Initially concentrating on companies offering digital tokens, the SEC its focus includes trading platforms, clearing activities, and broker-dealers.

Allegations against Coinbase

In June 2023, the SEC sued Coinbase, accusing it of facilitating the trading of at least 13 crypto tokens without proper registration. The legal dispute relies on the interpretation of the Securities Act of 1933 and a US Supreme Court case that defines whether an investment product qualifies as a security.

Implications for digital asset purchases

Reuters reports that the SEC contends that the purchase of digital assets on platforms such as Coinbase equates to acquiring tokens as investments, comparable to stock shares or bonds. Coinbase's defense argued that buyers are not entering contracts entitling them to proceeds from a common enterprise.

Concerns raised by Coinbase

Despite Coinbase raising concerns about the "major questions doctrine," asserting that the lawsuit exceeds regulatory authority without specific congressional authorization, the judge appeared skeptical of this argument according to Reuters. The SEC's lawsuit also targeted Coinbase's 'staking' program, claiming it should have been registered with the agency due to its commission-based structure and reward distribution to customers.

Image Source: REUTERS/Dado Ruvic