The ongoing battle between the US Securities and Exchange Commission (SEC) and Coinbase has set the crypto community in a frenzy. This development comes in as an example of challenges facing blockchain technology and crypto assets. Regulatory bodies have played the role of regulating and overseeing digital financial bodies.
Coinbase, among the world’s leading crypto exchanges, has found itself in the spotlight amid being the center of a legal brawl with the SEC on allegations that its products and services constitute securities. According to the crypto exchange, the SEC is attempting to redefine investment contracts. This has raised questions on the intersection of legal frameworks with digital assets.
Events around Coinbase and the SEC
The exchange has accused the Securities and Exchanges Commission of attempting to control every investment activity. This comes as a concern to crypto investors who only get into crypto investment based on their decentralized nature and free from government control.
The SEC’s involvement with the exchange started when the crypto exchange firm announced its intended launch of a new lending product referred to as Coinbase Lend. Among the services offered by the new product include allowing users to earn interest on their digital currency investment.
The SEC sent the crypto exchange a Wells Notice as a response to the announcement. The formal warning contends that the Lend product qualifies as a security under laws in the US on investment contracts.
Coinbase (COIN) recently filed a response on October 24 against the SEC in light of getting enforcement action against the crypto exchange dismissed. The exchange argued that the Securities and Exchange Commission is attempting to expand its regulatory scope in a way that’s not authorized by Congress.
Coinbase filling and appeals of dismissal
The SEC chose to sue Coinbase and Binance in early June, but Coinbase moved for a dismissal in August. At the time, Coinbase’s Chief Legal Officer expressed his interest in having clear rules of the road that could be followed by everyone.
The exchange argued, “As the SEC now would have it, an investment contract exists if someone parts with capital and expects that their purchase will increase in value. The crypto exchange added:
The SEC proposes this departure from precedent in the service of a radical expansion of its own authority. It claims authority over essentially all investment activity—and thus the right to define its own regulatory ambit, constrained only by its own ambition.
Coinbase
The crypto exchange elaborates that their assets, including crypto investments and baseball cards, can be investments but are not securities. However, they can be classified as securities if they offer a contractual claim related to the future profits of a business.
Moreover, the platform confirmed that the SEC hadn’t provided evidence showing trades on the exchange aligning with such claims or the financial stake of any business. The exchange wrote in the recent filing that:
Were the SEC’s position accepted, countless software-driven services would be securities. That would be another radical expansion of SEC authority with no grounding in precedent.
Coinbase
Following these developments on the lawsuit, the SEC faces judicial challenges in the crypto community as the rulings would undermine the regulatory body’s authority and stance on digital assets being securities.
In the recent filing, COIN argues that the SEC’s approach is overstepping its bounds. As such, it has brought up questions on the significance of separation of power, more so when enforcement actions are taken without clear regulatory guidance. Coinbase added to their filing:
The separation-of-powers concerns animating that question are at their most acute when an agency wields enforcement power without regulatory process, under the guise of enforcing a Congressional mandate.
Coinbase
Source: https://www.cryptopolitan.com/coinbase-on-sec-redefine-investment-contract/