The SEC Returns to the Legal Arena
Last year, the U.S. Securities and Exchange Commission (SEC) filed lawsuits against cryptocurrency exchanges Coinbase and Binance, accusing them of trading unregistered securities in the form of various cryptocurrencies. This week, the SEC’s legal teams faced off against the exchanges in court as both sides argued their positions regarding the classification of these cryptos as securities.
A Matter of Terminology
The ongoing narrative revolves around whether the SEC can successfully argue that cryptocurrencies should be classified as securities. Last week, the focus was on the approval of spot bitcoin exchange-traded funds (ETFs), but this week, attention shifted back to court proceedings as the SEC’s Enforcement Division sought to establish its case.
Implications for the Industry
The outcome of the SEC’s cases against Coinbase, Binance/Binance.US, and Kraken could have significant consequences for the U.S. crypto industry. If federal judges side with the SEC and determine that certain digital assets are securities, it would result in new registration and reporting requirements for issuers and trading platforms. On the other hand, if judges find fault with the SEC’s actions or recommend tailored legislation from Congress, it would provide a favorable environment for the industry to thrive.
Examining the Lawsuits
In June 2023, the SEC sued Coinbase and Binance, alleging that the exchanges listed digital assets such as solana (SOL), filecoin (FIL), and axie infinity (AXS), among others, that should have been registered as securities. The industry expressed discontent with these lawsuits, despite prior indications from SEC Chair Gary Gensler. Over the past few months, various stakeholders, including lawmakers and industry lobbyists, have filed briefs supporting the defendants’ motions to dismiss the cases.
Notable Developments
In the Coinbase hearing, Judge Katherine Polk Failla posed challenging questions but has yet to make a ruling. During the hearing, an SEC attorney argued that the token itself was not a security, but rather the transactions associated with it. The SEC’s case against Binance, originally scheduled for Friday, was postponed to Monday due to adverse weather conditions in Washington, D.C.
Additionally, a separate hearing took place before the U.S. Supreme Court regarding the challenge to the Chevron doctrine. This precedence grants regulatory agencies leeway in interpreting federal laws for rulemaking purposes, but it may potentially be overturned based on reports from SCOTUSblog.
Looking Ahead
The outcome of these court proceedings, as well as the potential shift in regulatory interpretations, is worth monitoring. Changes in agency interpretations could spur crypto legislation in Congress, as lawmakers may be prompted to introduce new laws for industry regulation instead of relying solely on agency interpretations.
Other Stories to Note
Bitcoin ETFs: Views on the recent approvals are mixed, with advocates and skeptics sharing their perspectives.
Do Kwon’s Appeal: Do Kwon, Terraform Labs’ representative, has appealed against the Montenegro High Court’s decision on his extradition requests.
Upcoming Events
This week saw hearings on the Markets in Crypto Assets Regulation (MiCA) held by the European Banking Authority (EBA) to discuss regulatory technical standards and preventing illicit crypto activities. The SEC v. Coinbase hearing also took place this week, with the SEC v. Binance hearing postponed to Monday due to weather conditions in Washington, D.C.
Additional Reading
Axios created a comprehensive timeline of the bitcoin ETF saga, while The Air Current compiled a reading list explaining how Boeing encountered challenges at the start of the year. The Internal Revenue Service clarified that the reporting requirement for crypto transactions over $10,000, as mandated by the Infrastructure Investment and Jobs Act, will only take effect after the Treasury Department issues relevant regulations.
That’s all for this week. See you next time!