The US Securities and Exchange Commission asked a judge to deny Coinbase Global Inc.’s request to compel the agency to respond to a rule-making petition the company submitted last year focused on how securities laws apply to cryptocurrency.
Coinbase, the biggest crypto exchange in the US, sued for the order last month, claiming the commission hasn’t been reasonable or prompt in providing a response. The exchange is also seeking a formal notice-and-comment process to allow the public to weigh in.
The SEC responded in a court filing Monday, calling Coinbase’s assertion that the agency has already made its decision “baseless.”
“Coinbase’s preference for faster or different regulatory action by the commission does not entitle it to extraordinary relief from this court,” the commission’s lawyers wrote in the filing. “The petition should be denied.”
SEC Chair Gary Gensler has repeatedly said most digital assets are securities and existing rules are clear — and that crypto firms simply refuse to follow them.
The relationship between Coinbase and the SEC has soured dramatically over the last several years. In 2021, the agency issued a Wells Notice — its intent to sue — over Coinbase’s upcoming lending product, which the exchange ended up axing. But its Chief Executive Officer Brian Armstrong accused the agency of “some really sketchy behavior.” Coinbase received another Wells Notice, over a slew of its products, earlier this year, and promised to “exhaust all avenues” if sued.
Coinbase’s chief legal officer Paul Grewal responded to the SEC filing on Twitter Monday, saying it may be the first time the agency has formally explained in court its views on whether and how it should create rules for the crypto industry.
The SEC argued in the filing that regulatory changes take time to consider.
It’s a “necessarily complicated endeavor,” the agency said. It added that there’s no deadline by which it must complete its work.
Coinbase hasn’t been harmed because the commission hasn’t acted on its petition, the SEC said.
But the commission can — and often does — enforce existing legal requirements, while it also considers amendments, the agency said in the filing.
The rulemaking petition “asks the commission to take a series of discretionary actions to replace existing applicable securities laws and regulations with a comprehensive new regulatory regime for the trading of crypto assets that are securities,” according to the filing.
The SEC has been involved in a slew of crypto-exchange-related enforcement efforts, raising fears over the industry’s future and business model. Crypto exchange Kraken settled with the SEC earlier this year, and agreed to stop providing its staking service — letting users earn yield on their coins — in the US. Bittrex was charged for operating an unregistered national securities exchange, broker, and clearing agency, and later filed for bankruptcy.
The enforcement actions are raising fears about how the agency’s actions could impact Coinbase.
Berenberg Capital Markets’ Mark Palmer estimated that at least 37% of Coinbase’s first-quarter net revenue came from streams unrelated to Bitcoin, which appears to be in the clear of SEC’s oversight; “at a minimum, these revenue sources likely would be targeted by the SEC in the enforcement action that we expect the commission to file soon.”
Shares of Coinbase fell about 2.9% to $59 as of 9:40 a.m. in New York. The stock has jumped 67% this year, after tumbling 86% in 2022.
(Updates to include the company’s share performance.)
