U.S. Senator Cynthia Lummis, several crypto advocacy groups, and academic professionals urged a federal court to reject the U.S. Securities and Exchange Commission (SEC) lawsuit against the U.S. crypto exchange Coinbase. The parties claim that the SEC is overstepping its boundaries in their amicus filing, which serves as supportive documents to the court. The SEC had previously filed lawsuits against Coinbase and Binance, including its U.S. subsidiary Binance.US, in June.
Regulation By Enforcement
The crypto exchanges challenge the agency’s stance that platforms like Coinbase act as unregistered securities exchanges, brokers, and clearinghouses that deal with unregistered securities in the guise of crypto assets.
Most recently, U.S. President Joe Biden‘s nominee for SEC Chair, Gary Gensler, has come under increasing political fire for his tough policies against crypto companies. Republicans in particular do not agree with the “Regulation by Enforcement” under Gensler. There have already been calls for his replacement.
The SEC and Gensler insist that rules that have been in place for decades for securities should also apply to the crypto industry. The U.S. crypto industry around Coinbase in turn require clear rules that also take into account the specifics of the crypto industry.
Political Headwind
These briefs, directed to Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York, mirror Coinbase‘s own defense in seeking to have the case dismissed. Several organizations and venture firms, including the Blockchain Association, Crypto Council for Innovation, Chamber of Digital Commerce, DeFi Education Fund, Chamber of Progress, Consumer Technology Association, Andreessen Horowitz, and Paradigm, along with numerous scholars, have submitted a total of six briefs, excluding Senator Lummis’s.
Coinbase, earlier this month, contended that the transactions highlighted by the SEC don’t qualify as investment contracts and hence don’t breach securities laws.
Lummis’s brief emphasized the significant economic, political, and legal implications of the case, suggesting that such matters are currently under Congress’s purview. Most of the briefs referenced the recent Supreme Court decision in West Virginia vs. the Environment Protection Agency, which stated that regulatory bodies cannot overextend their authority without Congressional consent.
However, another federal judge from the same court, Judge Jed Rakoff, recently dismissed a similar argument in a separate SEC case against a crypto entity. He stated that the crypto sector hadn’t reached a level of importance to align with those Supreme Court standards.
Uncertain Crypto Future
While the EU has developed a comprehensive regulatory framework for the crypto industry with MiCA, policymakers and regulators in the U.S. have failed to create a clear framework. Therefore, the future of the crypto industry in the U.S. is questionable.
The future of comprehensive crypto regulation by Congress remains uncertain. Lummis’s brief highlighted that several lawmakers, including herself and Senator Kirsten Gillibrand, have proposed bills defining the SEC’s jurisdiction and the potential role of its counterpart, the Commodity Futures Trading Commission (CFTC).The brief concluded by emphasizing that the unique nature of the crypto industry demands a comprehensive approach that goes beyond the purview of a single agency, taking into account global perspectives.
