Battle Lines Drawn as SEC Rejects Coinbase Bid for Crypto Rules

The Securities and Exchange Commission (SEC) recently denied a petition (PDF) by cryptocurrency exchange Coinbase asking the agency to develop new rules tailored specifically for digital assets.

In a 3-2 vote, the SEC said existing securities laws already provide appropriate oversight of crypto assets and that new rules are “unwarranted” at this time.

Keypoints

• SEC denies Coinbase’s petition for new crypto asset rules, disagreeing they are needed
• Coinbase argues existing laws are unclear, industry needs more regulatory clarity
• SEC believes current securities laws appropriately govern crypto assets
• Coinbase says it will challenge SEC rejection in court
• 2 SEC commissioners disagreed with decision, called for more industry dialogue

Coinbase strongly disagreed with the decision. The company originally submitted its petition in 2022, arguing that the patchwork application of 1930’s-era securities statutes to modern cryptocurrencies is “unworkable.” With the SEC providing little official guidance on how existing regulations apply, Coinbase said the crypto industry urgently needs more regulatory clarity to continue innovating responsibly in the U.S.

SEC Chair Gary Gensler defended the rejection, stating the agency has sufficient authority and is already conducting crypto-related rulemaking and enforcement under current statutes. As an example, he pointed to a recent SEC lawsuit against Coinbase itself for acting as an unregistered securities exchange.

Gensler also contended that by asking the SEC to write new crypto rules, Coinbase effectively acknowledged the agency’s jurisdiction over digital assets. But Coinbase Chief Legal Officer Paul Grewal disputed this, saying “no one” believes existing laws provide enough policy guidance for crypto.

Grewal announced Coinbase will legally challenge the SEC’s denial in court. He argued the decision was “arbitrary and capricious” and prevents much-needed collaboration between regulators and the industry. Two SEC commissioners even broke ranks to oppose the rejection, calling for continued engagement around crafting crypto-specific rules.

This battle over crypto regulations between Coinbase and the SEC is far from over. With bipartisan bills repeatedly stalling in Congress, the impasse leaves the industry no clearer on the legal status of digital assets in the U.S. Negative headlines also risk hampering further adoption and investment.

Yet most agree appropriate guardrails are needed for crypto to reach its potential while protecting consumers.

Finding the right balance remains a complex and divisive issue amongst lawmakers and regulators.