After the US Securities and Exchange commission (SEC) moved to sue Coinbase over asset listings and staking this March, the U.S. Crypto giant is now retaliating by taking on the regulatory agency to court in order to force the SEC to respond to a petition that the company filed aiming for a rule specific to digital assets.
In a tweet on April 21 Co-founder of Coinbase, Brian Armstrong posted:
Met with the SEC today. We’ll continue pushing for a clear rule book in the U.S. for crypto regs. The U.S. can’t afford to fall behind on this important technology to update the financial system. Also important for regulators to set policy and THEN enforce it. Not start with enforcement before there are clear rules. At this point seems like congress will need to step in.
Petition For A Writ Of Mandamus Against SEC
On Monday, Coinbase filed a petition for a writ of mandamus (a type of lawsuit for “exceptional circumstances” in which a court can force federal officials to act.) in the United States 3rd Circuit Court of Appeals against the Securities and Exchange Commission (SEC). A writ of mandamus is an action used to compel a lower court to perform a duty that it is legally obligated to do. Coinbase is attempting to get the SEC to respond to a petition it filed in July 2022, which requested that the Commission provide clearer regulations regarding cryptocurrencies.
The U.S. Securities and Exchange Commission (SEC) has reopened custody and exchange rules to explicitly state that they apply to digital assets since Coinbase requested it. Additionally, the agency has conducted several enforcement actions against crypto companies, with Coinbase being the subject of an investigation. However, the SEC has yet to draft a rule that is specific to digital assets.
Since Coinbase issued its request, the Securities and Exchange Commission (SEC) has reopened its custody and exchange rules to make it explicit that they apply to digital assets. Despite this, the SEC has not yet created a rule specific to digital assets. Additionally, the agency has launched several enforcement actions against cryptocurrency firms, with an investigation into Coinbase being the most prominent.
The Howey Test
For years, cryptocurrencies have been in a legal gray area, as U.S. legislators and the industry have grappled with the question of whether they are securities, commodities, or something else.
For years, cryptocurrencies have been in a legal gray area, as U.S. legislators and the industry have grappled with the question of whether they are securities, commodities, or something else.
In 2019, then-SEC chair Jay Clayton said the regulator did not consider Bitcoin and other cryptocurrencies to be securities, as opposed to tokens. Speaking on the matter, Clayton argued, “Where I give you my money, and you go off and make a venture, and in return for giving you my money I say ‘you can get a return’—that is a security.”
However, Gary Gensler, the current SEC chair, has made it clear in a recent interview that he does not share Hinman’s view. In fact, he sees “everything other than Bitcoin” as a security. Gensler contends that the SEC’s jurisdiction over most cryptocurrencies is based on the Howey Test, established in a landmark ruling in SEC v. W.J. Howey Co., the U.S. Supreme Court as a legal measure used in the U.S. to determine whether a transaction should be classified as an investment contract and thus be subject to federal securities laws.
Source: LeewayHertz – 4 Prongs of the Howey Test
Howey Test defined: https://www.investopedia.com/terms/h/howey-test.asp
The “Howey Test” has become a major hurdle for crypto projects, and the industry would like to see it go away. However, it is clear that it will remain an important factor in the regulatory landscape for the foreseeable future.
‘We’re Absolutely Convinced The SEC Is Violating The Law’
Coinbase, the largest U.S.-based cryptocurrency exchange, has seemingly had enough and is taking action: According to Fortune, Coinbase’s General Counsel, Brian Grewal, has declared, “We’re absolutely convinced the SEC is violating the law, we feel like we have no choice but to take them to court.” This decision is likely to have wide-reaching implications for the cryptocurrency industry in the U.S. and beyond.
In a blog post about the filing, Coinbase’s Chief Legal Officer Paul Grewal wrote:
“From the SEC’s public statements and enforcement activity in the crypto industry, it seems like the SEC has already made up its mind to deny our petition. But they haven’t told the public yet. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision.”
Crypto Community In Uproar About SECs Gensler’s Hypocrisy
The crypto community is calling out Gary Gensler, the head of the United States securities regulator, for apparent hypocrisy after a 2018 video emerged of him stating that cryptocurrencies are on par with commodities or cash and are not securities.
The video came from a “Blockchain and Money” class in the Fall Semester of 2018 taught by Gensler, a former professor at the Massachusetts Institute of Technology (MIT) before he became chair of the Securities and Exchange Commission (SEC). When discussing initial coin offerings (ICOs), Gensler said, “three-quarters of the market is not particularly relevant as a legal matter.”
Needless to say, his comment caught the attention of Brian Armstrong, who responded to a tweet by twitter influencer ZK-shark (which quickly went viral) with nothing but a “Wow”.
English
The SEC & the Chair Gary Gensler have become much more anti-crypto recently. Each time SEC has taken an action or Gensler made a decision, this would somehow benefit the Wall Street (or SBF & FTX Alameda in past). In general, the establishment Wall Street finance & banking system has always viewed cryptocurrencies and the blockchain tech as the potential foe and threat. Therefore, this finance lobby power had indirectly (with the help of political lobbyists and favorable Fed bureaucrats) blocked or slowed crypto regulatory & legal processes/procedures. That’s why the US crypto market has to operate under legal uncertainty where each US Federal agency treats them differently in terms of how this agency legally views cryptocurrencies – some treating crypto as assets, others as securities or a property.
The EU is far ahead of the US with the MICA Act. That’s why the US has to move swiftly and adopt much cleaner & well-defined set of rules and regulations, overall regulatory framework. And this is an absolute must for the crypto mass adoption, blockchain tech’s more rapid growth & development.
And those on the Wall Street who saw significant potential in the crypto & blockchain have become major actors, investors and crypto asset holders. This is exactly what had fueled the past bull run, the entrance of the smaller scale and individual organizational money & funds.
Hopefully more crypto-knowledgeable and crypto friendly politicians lead this policy debate and legal & regulatory changes.
Gensler did an extremely good job in not answering any questions during the grilling and that’s precisely what he was there at the hearing for: Not to answer any questions! I don’t think the crypto & blockchain community of USA will see any significant policy shifts very soon.