SEC vs Coinbase: What to Expect After Judge Rules Hearing Can Move Forward
Coinbase SEC lawsuit| Image: Arek Socha/Pixabay
Key Takeaways
- A federal judge has ruled that the SEC’s lawsuit against Coinbase can continue.
- The court dismissed one of the Commission’s claims on Coinbase Wallet.
- The SEC Coinbase case could be as prolonged as the Ripple lawsuit but can set a precedent for staking products.
In the SEC vs Coinbase legal battle, a federal judge has decided that the case will proceed. Despite dismissing one of the SEC’s complaints, the court’s ruling signals an impending case similar to the Ripple lawsuit in terms of time and complexity.
SEC-Coinbase: Understanding the Court’s Decision
Judge Katherine Polk Failla has allowed the United States Securities and Exchange Commission (SEC) to move forward with its lawsuit against Nasdaq-listed exchange Coinbase. However, she dismissed a single claim from the SEC around Coinbase Wallet.
The court document states: “Wallet helps users discover pricing on decentralized exchanges, providing pricing comparisons does not rise to the level of routing or making investment recommendations.”
In response, Coinbase’s Chief Legal Officer Paul Grewal said : “We also appreciate the Court’s understanding that technology innovations like Coinbase Wallet do not and cannot implicate US securities laws.”
Grewal said that the exchange is prepared. He added: “We look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation.”
The decision to allow the majority of the lawsuit to proceed validates the SEC’s regulatory framework and could become a long legal battle akin to that ongoing with Ripple.
The Implications of the Lawsuit
The court document states that the SEC has provided enough evidence to say Coinbase should be governed under federal laws as a marketplace, as a broker, and as a clearing agency. The document also states that Coinbase might have been selling investments without the necessary permission through its Staking Program.
As per the initial complaint, the SEC has accused Coinbase of operating without the proper registration for the staking-as-a-service program and alleges unlawful gains since at least 2019.
In 2023, crypto exchange Kraken agreed to halt its crypto asset staking-as-a-service program, which was not registered with the SEC, and to pay $30m to settle charges with the agency.
Coinbase CLO stated that early legal challenges against government agencies typically face rejection, but their goal is to seek clarity.
Meanwhile, he urged Congress to capitalize on recent momentum to develop a comprehensive digital asset legislation, emphasizing its importance for domestic innovation.
Does Coinbase Have the War Chest?
The legal battle about Coinbase would be a litmus test for crypto staking. Especially when a decision for Ethereum ETFs is in the pipeline and several S-1 filings now include staking. However, for Coinbase, this could mean a potentially expensive and long case.
In February, Coinbase released  its 8-K filing and noted $95m in net income for 2023. Coinbase reported almost $1b in adjusted EBITDA and $3b in revenue. In 2024, the exchange aimed at expanding revenue through core trading and USDC. At this stage, the exchange appears financially sound to take on the financial responsibility that will come with the case.
What Does This Mean for Crypto Regulation?
The SEC vs Coinbase case will now go ahead. It could have far-reaching implications for crypto staking. However, the final verdict could take years to come, like the Ripple lawsuit.
The court’s decision to keep Coinbase Wallet out of the case also represents a partial victory for the exchange. As the case progresses, it can potentially guide the development of a clearer crypto framework.
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