SEC Accuses Coinbase Of Gathering Sympathy To Prevent Dismissal

By submitting a 40-page objection document on October 3, the United States Securities and Exchange Commission (SEC) stepped up its legal conflict with Coinbase. It sought to reject Coinbase’s request to dismiss the matter “in its entirety.”

The SEC’s most recent action highlights the regulatory body’s resolve to control the cryptocurrency sector. The argument made by Coinbase that the SEC “lacks authority” to oversee securities transactions involving Bitcoin assets is at the core of the argument.

The Ethereum staking service offered by Coinbase, in particular, has made it clear that it does not fall under the jurisdiction of securities legislation. On the other hand, the SEC has remained steadfast in its belief that some cryptocurrency-related activities ought to be regarded as securities and governed by the law,.

 The SEC said in a recent court filing that Coinbase’s Ethereum staking service effectively obliged users to put money into a pool that Coinbase administered in the hopes of receiving annual returns, which the SEC classifies as security. The legal tussle between Coinbase and the SEC has been analyzed by various industry professionals as a  complex regulatory environment surrounding cryptocurrencies and blockchain-based services.

Nivesh Rustgi from Decrypt has written that the verdict, in this case, may have profound effects on the cryptocurrency market and establish a precedent for how regulatory bodies would interpret and apply current securities regulations in the digital asset market.

Coinbase Tries To Demystify Staking Service, Case Generate More Audiences

Coinbase, however, insists that its staking service differs fundamentally from conventional securities because it allows users to participate in the network’s Proof-of-Stake (PoS) consensus mechanism, where stakes protect the blockchain and authenticate transactions.

The legal battle has attracted the interest of the cryptocurrency community because it raises concerns about the limits of what constitutes legal regulation of digital goods and services. Rustgi has added that more clarity on the situation will pose a significant worry for cryptocurrency exchanges and market players negotiating the expanding cryptocurrency ecosystem with varied interpretations of current securities rules.

According to SEC, the proposed Howey Test slated to be applied in their operations didn’t require investment contracts. The commission also stated that the flexible and adaptable features still apply to cryptocurrency assets.

SEC Moves To Defend Its Operations, Paul Grewal Wades In

According to the SEC’s opposition motion, the regulatory body is ready to vehemently defend its right to supervise cryptocurrency-related operations that it views as securities. How other cryptocurrency exchanges and service providers should approach their regulatory requirements may be suggested by the outcome of this case.

SEC also mentioned that Coinbase’s ETH staking business needs some monetary investments to have an annual yield in a Coinbase business conglomerate, also termed a securities. While responding to SEC legal filings, Paul Grewal, the Chief Legal Officer (CLO) at Coinbase, said by his X handle that the commission’s recent move is yet another “old trick.”

Grewal has hinted that all digital assets on its platform are not termed “securities” by previous court decisions. He later referenced the SEC’s lost lawsuit against Ripple, which has a similar stand. During one of the House Financial Services Committee hearings, Grewal also dismissed SEC’s claim, insisting that it could have well be considered as securities as regards the questioning by the United States law maker, Ritchie Torres.