SEC’s Interpretation of Digital Asset Contracts Unlawful: Coinbase CLO

• Coinbase’s Paul Grewal highlights Congress actively passing legislation on digital asset standards.
• Grewal argues that the SEC’s interpretation of “investment contract” for digital assets contradicts the law.
• Lawyer Bill Morgan questions Coinbase’s inconsistent stance on XRP trading.

Earlier today, Coinbase Chief Legal Officer Paul Grewal accused the U.S. Securities and Exchange Commission (SEC) of violating the law in its interpretation of “investment contract”. In Twitter thread, Grewal made the case for Congress, rather than the SEC, having regulatory authority over digital assets.

The Coinbase legal head contended that the SEC’s claim of jurisdiction over all digital assets, except Bitcoin, is not only “staggering” but also detached from the necessity of enforceable rights between businesses and buyers.

Furthermore, Grewal emphasized that Congress isn’t  “just capable of fixing standards by theoretically passing legislation in the future, it’s actively working to do that RIGHT NOW”, likely referencing a bill expected to be brought before the  House Financial Services Committee returns from its July 4 recess. 

After “re-reading” the Major Questions Doctrine holding in Nebraska, Grewal insisted that the SEC interpretation of the “investment contract” concerning digital assets contradicts the law.

The Major Questions Doctrine, published from a June 2022 Supreme Court decision, aims to limit the power of federal agencies. It states that Congress does not delegate the decision-making authority for cases of significant political and economic impact to agencies like the SEC.

In April, Coinbase cited this doctrine in its response to the SEC, arguing that the SEC lacks the unilateral grounds to make decisions about crypto, specifically regarding token classification. Coinbase argued that such decisions would constitute a substantial assertion of regulatory authority over a significant portion of the American economy.

The tweet thread by Grewal caught the eyes of lawyer Bill Morgan who switched the conversation to Coinbase’s handling of XRP trading. Morgan stresses that he has “re-asked” repeatedly why Coinbase continues the halt on XRP trading on its exchange while continuing the trading of other coins.

Moreover, Morgan calls out Grewal for not providing a thorough explanation for the platform’s contradictory position and questions their underlying motives.