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Coinbase sues the SEC seeking clarity on cryptocurrency classification
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(Kitco News) - Coinbase has decided to take the fight to the Securities and Exchange Commission (SEC) by filing a lawsuit in a U.S. federal court seeking to compel the regulator to provide a “yes or no” response to a petition that the firm originally submitted last July seeking clarity on cryptocurrency regulation.
The top U.S. cryptocurrency exchange revealed the “narrow action” in a blog post on Monday, saying that to date, “more than 1,700 entities and individuals have submitted comments to Coinbase’s petition echoing the request for clarity.”
The petition in question sought to have the SEC propose and adopt a clear regulatory framework for the cryptocurrency industry in the U.S. and establish guidelines for companies like Coinbase to work from as they build out their businesses.
The petition included 50 questions that covered a wide range of topics related to the regulatory treatment of certain digital assets. Of specific interest for Coinbase, as well as numerous other players in the ecosystem, is the question asking the SEC to provide clarification about its process of determining the classification of a token as a security or a commodity.
Paul Grewal, chief legal officer at Coinbase, noted in the blog post that the Administrative Procedure Act requires the SEC to respond to the exchange’s rulemaking petition “within a reasonable time.”
Coinbase feels that nine months is a sufficient amount of time for the agency to respond to its petition, so now it has expanded its efforts to get an answer by filing the lawsuit.
“It’s important for the SEC and any other agency petitioned for rulemaking to respond to the petition once the agency has made up its mind, especially if the answer is no – otherwise the public can never exercise its right to ask a court if the agency’s decision was proper,” Grewal wrote. “If the SEC says no to our rulemaking petition, which it has the right to do, then Coinbase would be allowed to challenge that decision in court and explain in that formal setting why rulemaking is required.”
The matter is of particular importance to Coinbase since the exchange received a Wells notice from the SEC on March 22, which typically proceeds an enforcement action.
“It seems like the SEC has already made up its mind to deny our petition,” Grewal said. “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.”
Grewal noted that for those that see this step as unusual, “It is, because this step is usually not needed. But it is also unusual for an agency to bring enforcement actions based on a view of the law that it has not yet shared formally with the public.”
While SEC Chair Gary Gensler has repeatedly stated that in his view, all cryptocurrencies aside from Bitcoin meet the definition of a security and should be regulated as such, the agency has yet to release formal guidelines outlining its stance.
“Regulatory clarity is overdue for our industry,” Grewal said. “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.”
“The rulemaking process is a critical step to giving the public notice about what activities they can and cannot engage in. So until the crypto industry gets that clarity, we will continue to take every step available to us to seek it, which includes today’s filing,” Grewal concluded.
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Coinbase may consider relocation if regulatory clarity in the U.S. doesn't improve - CEO |
After the filing was announced, Coinbase CEO Brian Armstrong tweeted that he “just minted Stand with Crypto,” and provided a link to a page where those with a crypto wallet can mint a free NFT containing an image of a shield.
According to the project’s description, “The Stand with Crypto commemorative NFT is a symbol of unity for the crypto community seeking sensible crypto policy. The NFT features a blue shield, representing a collective stand to protect and promote the potential of crypto. The blue shield not only shows your support for the cause but also that you’re part of a growing community who believes in the future of crypto.”
The Stand with Crypto page also provides a link to Coinbase’s Crypto435 initiative, which calls on people to officially sign up to become cryptocurrency advocates.
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