Coinbase disagrees with SEC’s justification for rejecting crypto rulemaking

Coinbase, the cryptocurrency exchange, has escalated its legal battle against the United States Securities and Exchange Commission (SEC) by requesting a court order to compel the agency to initiate the process of establishing regulations for the crypto industry. In a filing submitted to the Third Circuit Appeals Court on March 11, Coinbase argued that the SEC violated the Administrative Procedures Act (APA) when it rejected the exchange’s petition in July 2022 to create crypto regulations without providing a sufficient explanation for its decision. Coinbase criticized the SEC’s justification for refusing to engage in rulemaking, stating that it needs to provide a reasoned explanation for its stance. The exchange claimed that the SEC’s denial was arbitrary and capricious since it failed to clarify how securities laws apply to crypto while actively enforcing those rules by suing numerous crypto companies for violating securities laws. Coinbase urged the court to review its petition, reject the SEC’s denial, and compel the agency to commence the rulemaking process. In a related post on March 11, Coinbase’s legal chief, Paul Grewal, emphasized that if the SEC believes it can assert new authority over digital assets, it must do so through a rulemaking process that allows the public to understand and challenge its position. Coinbase also accused the SEC of abruptly changing its stance on crypto, claiming that the agency previously acknowledged its limited authority and the lack of clarity regarding crypto regulations. However, the SEC later asserted that it had sufficient authority to regulate crypto, a shift that Coinbase argued required congressional approval. Coinbase’s appeal against the SEC’s denial of rulemaking is separate from the SEC’s lawsuit in June 2023, which accused Coinbase of operating as an unlicensed exchange and offering unregistered securities. In January, Coinbase and the SEC presented oral arguments regarding the exchange’s motion to dismiss in that case, relying on many of the same arguments presented in this filing, namely that the SEC lacks authority over crypto exchanges unless authorized by Congress. The proposed crypto regulations in the US are driven by lawmakers’ concerns and uncertainties surrounding the industry.