War over Crypto regulation heats up as Coinbase sues SEC

Coinbase, one of the world's leading cryptocurrency exchanges, has filed a lawsuit against the Securities and Exchange Commission (SEC) on Monday.

The suit asks that the regulator be required to publicly share its response to a petition from July, 2022, in which Coinbase requested that the SEC allow the crypto industry to be regulated using existing frameworks.

The petition urged the SEC to "propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods", specifically referring to digital assets like cryptocurrencies.

However, the SEC did not provide a specific public response to the petition at the time.

Today, we filed a narrow action in the U.S. Circuit Court to compel the SEC to respond “yes or no” to a rulemaking petition we filed with them last July asking them to provide regulatory guidance for the crypto industry. 1/4 https://t.co/rlsS1DIFfl

— paulgrewal.eth (@iampaulgrewal) April 25, 2023

In recent months, the SEC has ramped up its enforcement actions and warnings against crypto exchanges, including Coinbase. While the SEC has not made a public statement on Coinbase's petition, the exchange's chief legal officer, Paul Grewal, believes that the regulator has already made up its mind to deny the request.

Grewal stated in a blog post, "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."

The SEC has taken action against several crypto exchanges and individuals accused of manipulating crypto assets, including Bittrex, Gemini, Genesis, crypto entrepreneur Justin Sun and Terraform Labs founder Do Kwon since January.

Coinbase's lawsuit marks its first formal challenge against the regulator, a little over a month after the SEC issued a Wells notice to the exchange, warning of pending legal action. Grewal emphasised the importance of regulatory clarity in the industry and stated, "Coinbase does not take any litigation lightly, especially when it relates to one of our regulators. Yet, Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business."