Good day everyone,
I hope you are all well and had an excellent week, welcome to CryptoGod-1’s blog on all things crypto related. Today we will be looking at the first oral arguments as the Securities and Exchange Commission (SEC) met with Coinbase on Wednesday the 17th of January 2024 in federal court for their industry-defining lawsuit.
Coinbase V SEC
On Wednesday the 17th of January 2024 the Securities and Exchange Commission (SEC) met with Coinbase in federal court for their first exchange of oral arguments in their case. The market regulator brought the case against Coinbase when they sued them back in June 2023 for listing a handful of “crypto-asset securities” on its trading platform while failing to register as a securities exchange.
A lot of other crypto exchanges and firms have already settled and agreed to pay a fine when faced with SEC legal pressure but Coinbase has remained defiant and defended itself. Back in August 2023 they argued that it lists no securities at all and that the regulator has a warped interpretation of how crypto assets relate to securities law. They also noted that when the SEC approved Coinbase's S-1 application form to list on national securities exchanges then the SEC implied that its business operations were by the law.
The token COIN is down 16% since the beginning of January which is in part thanks to the SEC’s reluctant approval of Bitcoin spot ETFs. This has taken investor capital away from other crypto-related companies and products.
The chairman of the SEC, Gary Gensler, last week explained that his agency’s approval of such funds was largely a response to its unfavourable ruling in another crypto-related case with Grayscale last year. Back then the court determined that the SEC hadn’t provided consistent reasoning for why it had previously approved Bitcoin future ETFs, but was rejecting spot ETFs. Once the court's ruling had been given then Gensler emphasized that he was respecting the law and the court’s directive. Gensler did also add that the agency’s ruling would “in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.”
In their case with Coinbase the agency had argued that 13 tokens listed on Coinbase were securities, including coins like Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), NEAR (NEAR), Voyager (VGX), Dash (DASH) and Nexo (NEXO).
Gensler noted:
“Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws.”
A report by Reuters noted that the case will likely have larger ramifications for the digital asset sector, as it could clarify the SEC’s role in regulating the industry. The report noted that Coinbase plans to make the chief argument it has relied on in past filings, one used by other crypto companies: that the SEC is overstepping its authority and the assets it lists for trading are different from regulated products like stocks and bonds.
The judge overseeing the case, Judge Katherine Polk Failla, is already familiar with cryptocurrency based cases as back in August 2023 she dismissed a class-action case against decentralized exchange Uniswap arguing that Ether (ETH) is a commodity.
Other experts have going their opinions on the case, noting that Coinbase is unlikely to secure an outright dismissal of the SEC’s case. This is according to Jeremy Hogan, partner at Hogan and Hogan. Coinbase is hoping for the case to be dropped via an order but their arguments of questioning the SEC authority over crypto exchanges and while U.S. courts rarely dismiss these lawsuits, Coinbase has some chances to win. He also notes that the company could lose up to 30% of its revenue if forced to segregate some of its multifaceted services into different buckets. This could include trading, staking, and custodianship.
In his tweet Hogan noted:
“Based on this Judge's prior dismissal of the Uniswap case, her clear understanding of the technology, her finding that Eth is a commodity, and acknowledgement that Congress should be involved in this process… I'll be very interested to see how this plays out.”
With this case firmly sitting as part of the SEC's crackdown on crypto firms that has been taking place since FTX collapsed in November 2022, it is bound to be once of the most interesting cases in sealing the fate of cryptocurrencies in the United States. The SEC meanwhile will look to take the same approach as they did against Binance, noting that the court should consider a recent ruling on Terraform Labs that determined the company has sold securities without registration. The decision, according to the SEC, provided further grounds for its cases against the crypto exchanges.
A YouTube analyst Crypto Capital Venture has argued that if Judge Katherine Polk Failla does rule in favour of Coinbase against the SEC then it could spark an alt-run which could see 100% or more returns on assets such ADA or Matic. He noted in a recent YouTube video that some of the events leading up to the decision to sue Coinbase, such as the fact that only 22 days after the SEC allowed Coinbase to go public did Gary Gensler testify that the exchanges was trading assets which do not have the regulatory framework at the SEC or CFTC.
Crypto Capital Venture also noted that with the judge overseeing the Ripple case ruling that XRP is not security, then the market should have significant cause for uncertainty over this lack of clarity alone.
He also noted how in the day following the XRP news the coin saw a 100% pump, back in July 2023, before falling all the way back to previous levels. In a similar note Bitcoin and the rest of the crypto market are still far away from their previous bull market numbers then there is plenty of scope for increases in value. However it is important to note the upcoming Bitcoin halving which generally sess an overall improvement in the market anyway following the event. Although he doesn’t know how it will play out, the analyst suggests the market is in a good place and the final decision, which some may feel could drag in 2025, will likely land as the market is in a strong setting.
Have a great day,
Peace. CryptoGod-1.
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