SEC Returns to Court: Implications for Crypto Space

• US SEC Sues Crypto Exchanges Over Alleged Unregistered Securities
• Current State of Crypto
• Why the SEC Lawsuit Matters
• Breaking Down the Lawsuit
• The Hearings
• Relevant Stories
• Looking Forward

US SEC Sues Crypto Exchanges Over Alleged Unregistered Securities

Last summer, the U.S. Securities and Exchange Commission (SEC) commenced a lawsuit against crypto exchanges Coinbase and Binance. The allegations asserted that these exchanges had listed and traded unregistered securities in the form of various cryptocurrencies. This week, the ongoing legal dispute saw the exchanges' legal teams arguing in court, stating that the SEC had not sufficiently proven that these cryptocurrencies are indeed securities.

Current State of Crypto

The current global happenings in the domain of cryptocurrency and government are interesting. The narrative suggests that there's no let-off for the weary. Last week, discussion centered on the SEC's potential approval of spot bitcoin exchange-traded funds (ETFs). The events that led to the approval were quite tumultuous. However, this week we find ourselves back in the courtroom where the regulator's Enforcement Division is contesting that cryptos are, in fact, securities.

Why the SEC Lawsuit Matters

A significant portion of the U.S. crypto industry may depend on the outcome of the SEC's lawsuits against Coinbase and Binance. If federal judges agree with the SEC's assertion that various digital assets are securities, then new registration and reporting requirements will be imposed on issuers and trading platforms. If the judges deem that the SEC has overextended its reach, or if they propose the creation of custom-made laws, then a substantial part of the industry will receive the green light to move forward.

Breaking Down the Lawsuit

In June 2023, the SEC initiated a lawsuit against Coinbase and Binance. The accusations were that the companies listed digital assets like Solana$104 5.03% (SOL), Filecoin$5.91 -2.78% (FIL), and Axie Infinity (AXS), among others. According to the SEC, these assets were unregistered securities.

These lawsuits have not gone down well with the industry, despite SEC Chair Gary Gensler's repeated warnings. Over the past few months, lawmakers, industry lobbies, and others have filed amicus briefs, urging the court to agree with the defendants' motions to dismiss the cases entirely.

The Hearings

A preview of Wednesday's Coinbase hearing shows that it shares a lot of the core ideas with the Binance case. During the hearing, Judge Katherine Polk Failla asked several tough questions, but is yet to pass a verdict. An SEC attorney, during the hearing, stated that the token itself was not a security, but the actual transactions involved were.

A hearing for the SEC's case against Binance, originally scheduled for Friday, was postponed to Monday due to snow in the Washington, D.C. area.

Another hearing of interest took place before the U.S. Supreme Court, where two parties are challenging the Chevron doctrine. This doctrine grants federal regulatory agencies the freedom to interpret federal laws for rulemaking purposes. According to SCOTUSblog, there's a chance this precedent might be overturned.

Relevant Stories

There were a few interesting stories this past week. Sandali Handagama spoke to several bitcoin and crypto advocates about last week's ETF approvals. Terraform Labs' Do Kwon appealed the Montenegro High Court's ruling that he should be extradited. His lawyers also managed to delay the SEC's case against Terraform Labs to March 25 in hopes of his extradition to the U.S. instead of South Korea.

Looking Forward

The European Banking Authority (EBA) held two hearings on the Markets in Crypto Assets Regulation (MiCA) regarding regulatory technical standards (RTS) and implementing technical standards (ITS). There was also a hearing in SEC v. Coinbase. The hearing in SEC v. Binance was postponed to Monday due to snow in Washington, D.C.

Edited by Jonathan Stoker