SEC’s Response Spurs Calls for Coinbase to Leave the U.S.

• The SEC has responded to Coinbase’s lawsuit.
• The regulator’s response has frustrated community members.
• Some users have questioned Coinbase’s decision to tough it out in the U.S.

As uncertainty continues to dominate the crypto regulatory scene in the United States, Coinbase has acted as the industry’s lead advocate.

Fearing that the current U.S. crypto regulatory trajectory would drive innovation abroad, the crypto exchange has engaged in extensive lobbying and advocacy efforts. 

Coinbase took its efforts further in April by suing the U.S. Securities and Exchange Commission over a lack of clarity on what digital assets constitute securities. It sought a “yes or no” answer to a July 2022 petition for crypto rulemaking. The SEC’s response, however, has left much to be desired.

The SEC Responds

In a court filing on Monday, May 15, the SEC asked the Third Circuit of the U.S. Court of Appeals to deny Coinbase’s request to compel the agency to answer whether it would engage in rulemaking for the crypto industry. The SEC argued that there is no fixed timeline for responding to such petitions, adding that “the acknowledged complexity of Coinbase’s proposals undermines its request for accelerated relief.”

SEC lawyers also described Coinbase’s claims that the agency has already privately formed a position on whether to engage in rulemaking for the industry as “baseless.” The SEC further asserted that its engagement in crypto enforcement actions did not preclude rulemaking. The agency instead framed these actions as a process to aid its decision on whether to establish a separate framework for crypto, despite the high costs to the parties in these cases.

Responding to the SEC’s filing, Coinbase Chief Legal Officer Paul Grewal surmised that the regulator had chosen to provide a “resounding maybe” to a yes or no question. According to Grewal, the SEC’s response further underscored Coinbase’s concern that the industry lacked clarity on what crypto assets and operations fell under the SEC’s purview. He added that the regulator would likely continue to change its mind over time, deepening this confusion.

Cinneamhain Ventures Partner Adam Cochran opined that the SEC’s pace to come to a consensus on crypto rules is unacceptable, cautioning that it may already be too late by the time the regulator is ready.

Meanwhile, a video circulating on Twitter in the last 24 hours shows SEC Chair Gary Gensler commenting on the case and maintaining his view that crypto does not need separate rules.

The SEC’s continued refusal to give direct answers on the classification of crypto assets and desire to carry out enforcement actions have raised the question of whether Coinbase’s fight is worth it.

Is It Worth It for Coinbase?

In light of the SEC’s response to the Coinbase lawsuit, Guy “Coin Bureau” Turner questioned whether the Coinbase fight, albeit “noble,” was worth it, considering that other jurisdictions were working to attract crypto businesses like Coinbase.

Turner was not alone, as many others nudged the crypto exchange to consider a move to the United Arab Emirates, which has long declared its intentions to become a crypto hub. Coinbase Chief Executive Officer Brian Armstrong recently hailed the region for having clear and friendly crypto rules without compromising customer protection.

While leaving the U.S. for the UAE is tempting, considering the millions of dollars the exchange could spend on legal fees, others, like Messari chief Ryan Selkis, have argued that the U.S. is worth fighting for, highlighting the country’s dominance in finance and liberal constitution.

But with Coinbase’s recent focus abroad, onlookers also wonder whether the die has been cast.

Is Coinbase Leaving the United States?

Coinbase’s Brian Armstrong has often expressed that the SEC’s current approach drives crypto innovation abroad. 

While Armstrong and his crypto exchange have often argued that keeping this innovation in the U.S. is necessary, the Coinbase chief has also expressed that the firm could consider relocating if it fails to see a significant shift from the uncertainty that clouds regulations.

Per his statements, however, there are no immediate plans to do so.

On the Flipside

• Coinbase faces the threat of enforcement action from the SEC over several aspects of its business, including its staking and non-custodial wallet services.
• U.S. lawmakers have resumed talks on crypto regulations, though House Democrats remain skeptical.

Why You Should Care

Coinbase is the largest crypto exchange in the United States. Shuttering its operations in the U.S. would significantly impact the industry in the country.

Read this to learn more about the confusing state of crypto regulations in the U.S.:

CFTC Opposes SEC’s Crypto Position: Calls ETH and Stablecoins Commodities

Japan emerges as the primary target of North Korean crypto hacks. Find out more:

North Korean Crypto Thefts Primarily Target Japan, Study Reveals