Last summer, the U.S. Securities and Exchange Commission (SEC) sued crypto exchanges Coinbase and Binance, alleging they listed and traded unregistered securities in the form of various cryptocurrencies. This week, the regulator’s legal teams squared off against the exchanges in court as the companies disputed the SEC’s argument that those cryptos are securities.
New Round, Same Foe
It seems there’s no respite for the weary. While last week’s narrative revolved around the SEC’s potential approval of spotbitcoin exchangetraded funds (ETFs) and the tumultuous sequence of events preceding the final approval, this week brings us back to court, with the regulator’s Enforcement Division asserting its case regarding cryptos as securities.
Importance of the Outcome
The outcome of the SEC’s cases against Coinbase, Binance/Binance.US, and Kraken holds significant weight for the U.S. crypto industry. If federal judges uphold the SEC’s stance that various digital assets are securities, this would impose new registration and reporting requirements on issuers and trading platforms. On the other hand, if judges conclude that the SEC has overstepped or that tailored laws from Congress are more appropriate, it would signal a green light to a substantial portion of the industry.
Case in Focus
In June 2023, the SEC sued Coinbase and Binance, alleging the companies listed digital assets like solana (SOL), filecoin (FIL), axie infinity (AXS), and others, all of which the SEC contended were unregistered securities.
This move naturally ruffled feathers within the industry, despite SEC Chair Gary Gensler telegraphing these suits for some time. Over the ensuing months, lawmakers, industry lobbyists, and others filed amicus briefs urging the courts to support the defendants’ motions to dismiss the cases entirely.
However, the road ahead appears precarious for the exchanges, as a Wednesday hearing for Coinbase indicated that a dismissal at this stage is improbable.
Judge Katherine Polk Failla posed a series of tough questions during the hearing but has yet to issue a ruling. An SEC attorney contended that the token itself was not a security, emphasizing that it was the actual transactions involved. Meanwhile, a Friday hearing for the SEC’s case against Binance was postponed to Monday due to snow in the Washington, D.C. area.
Another significant hearing took place before the U.S. Supreme Court, where two parties challenged the longstanding Supreme Court precedent known as the Chevron doctrine, which grants federal regulatory agencies the latitude to interpret federal laws for rulemaking purposes. Should this precedent be overturned, it could potentially curb regulatory agencies from discovering new meanings within ambiguous statutes.
Michael Passalacqua, an associate with Willkie Farr & Gallagher LLP, suggested that this case is worth monitoring, as regulatory agencies may be less inclined to explore fresh interpretations within unclear or outdated statutes. He also mused on the possibility of crypto legislation gaining momentum in Congress if lawmakers are compelled to pass new laws to regulate the industry, rather than deferring to agency interpretations.
Looking ahead to the following week, the battle in the court promises to be intriguing.
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See you next week!