- Industry participants believe there is a lack of regulatory clarity in crypto markets.
- Coinbase took the SEC to court in hopes of clearing the fog.
- A recent court order may force the SEC to disclose whether it would engage in rulemaking finally.
Industry participants often describe the state of crypto regulations in the United States as unclear. However, U.S. Securities and Exchange Commission Chairman Gary Gensler has begged to differ in recent statements. According to Gensler, the rules have always been clear, but the crypto industry does not want to comply.
In July 2022, amid the back-and-forth over whether policymakers need to create new rules for the nascent market, Coinbase filed a petition urging the SEC to clarify its process for classifying crypto asset securities.
Receiving no response and faced with the threat of enforcement action, the crypto exchange took things a step further in April 2023, dragging the regulator to court, and seeking to force it to respond to its rulemaking petition. The court has now ordered the SEC to clarify its position on Coinbase’s petition.
SEC Ordered to Clarify
In a court order dated Tuesday, May 6, the Third Circuit of the U.S. Court of Appeals asked the SEC to disclose its stance on Coinbase’s petition for rulemaking in light of its recent enforcement action against the crypto exchange, giving the regulator seven days to respond.
Alternatively, the SEC must give a timeline for when it plans to consent to or deny Coinbase’s petition. The SEC must also argue why the court should not continue to oversee the case to request regular reports and establish a deadline to rule on Coinbase’s request.
The latest filing has unsurprisingly sparked some excitement within the crypto community, with some legal experts marking it as a definitive victory.
“No More Monkeying Around”
ConsenSys lawyer Bill Hughes emphasized that the court is “implicitly” ordering the SEC to take a stance on Coinbase’s petition. “No more monkeying around,” he added in a potential jab at the SEC’s perceived delay tactics.
The lawyer notably expressed that the court filing was a win for Coinbase.
Hughes was not the only pro-crypto legal expert enthused by the filing as exlawyer.eth/tez, @exlawyernft on Twitter also asserted that the order indicated that the court was siding with Coinbase.
Former SEC Regional Director Marc Fagel also expressed a similar sentiment as pro-crypto lawyers but warned that the outcome could be an extended legal battle.
"It [the court order] signals the court’s possible willingness to force the SEC to move forward in Coinbase’s rulemaking proposal, which could set off a drawn-out legal battle," Fagel told DailyCoin.
It is worth noting that the recent court order is in line with Coinbase’s May 23 filing asking the court to force a response from the regulator within seven days.
While the order appears positive for the crypto exchange and the broader industry, it is worth noting that the SEC can still delay its response or deny the petition. In the latter, Coinbase Chief Legal Officer Paul Grewal has hinted at the firm’s desire to exercise its right to question the decision in court.
"If the SEC's answer to our petition for rulemaking is 'no,' then they are required by law to tell us, because we have the legal right to question that 'no' in court. And there are serious questions to be asked," Grewal said in a statement on Wednesday, June 7.
As highlighted in the recent court order, despite the ongoing case over the lack of regulatory clarity in the U.S., the SEC filed an enforcement action against Coinbase on Tuesday, June 6, alleging that it is an unregistered securities exchange.
On the Flipside
- The court has yet to decide on the case.
- The SEC claims it has yet to decide on the petition despite its crypto enforcement actions.
Why This Matters
The court order backs the SEC into a corner to decide on crypto rulemaking.
Read this deep dive to learn more about the arguments in the case:
While the SEC may have taken a hit in its legal battle with Coinbase, it may have scored a significant victory in its fight against Binance. Find out how customers are affected: