Tuesday brought a fresh obstacle to Coinbase’s legal battle over the legality of cryptocurrencies as U.S. state authorities and legal professionals joined a federal securities regulators’ campaign to claim the business had illegally run an unregistered exchange.
The Securities and Exchange Commission’s lawsuit against one of the largest cryptocurrency exchanges in the nation has been viewed as crucial for the survival of the industry, with the sector accusing the agency of enforcing existing laws in the absence of new legislation from the U.S. Congress.
Three new amicus briefs argue that cryptocurrency is neither substantial nor special and that the SEC can regulate digital assets in accordance with current law. Amicus briefs give interested parties who are not directly involved in the case a chance to comment on it.
The SEC’s legal position, despite Coinbase’s attempts to claim otherwise, is neither innovative nor noteworthy, according to the North American Securities Administrators Association (NASAA).
NASAA, a century-old organization whose 68 members include securities regulators from all 50 U.S. states, said in its filing that the SEC’s theory in this case is “consistent with the agency’s longstanding public position” and “well within the bounds of established law,” adding that digital assets shouldn’t receive special treatment.
The petition stated that, aside from speculation, “there has not been identified or widely adopted any practical economic use case for the vast majority of digital assets.” “They are aggressively marketed and a haven for fraud, so they receive disproportionate attention from the media and regulators. However, that attention belies the very limited size and significance of this ‘industry’ in the context of the broader U.S. economy.”
In a separate brief, two academic administrative attorneys suggested Coinbase erred in relying on a legal principle that forbids governmental organizations from intervening in economically significant ways without explicit Congressional authorization.
According to the brief by Todd Phillips of Georgia State University and Beau Baumann of Yale Law School, “the major questions doctrine is simply irrelevant to this action,” because the Coinbase case involves enforcement against a specific corporation rather than quasi-legislative rulemaking. “The SEC brought a specific complaint in federal court, far from asserting new power to regulate the ‘national economy,'” said the author.
The Supreme Court recently expanded the major questions doctrine when it overturned President Joe Biden’s cancellation of student loans, but the pair argue that applying it to cryptocurrencies would be “absurd” because it would result in a different definition of securities for cases brought by private litigants rather than governmental organizations.
The New Finance Institute, a public benefit company that runs two blogs on finance and financial empowerment, supported those pro-government submissions by arguing that Congress wanted investor protection laws to have a wider scope than only capital-raising transactions.
Due to the lack of cash flow generation (a long-established need for any meaningful investment), the purchase of crypto tokens should not be considered an investment, according to the NFI filing. However, because the buying public is not given full and honest notice that they are not investing, such purchases are still investment contracts.
The SEC filed lawsuits against several cryptocurrency exchanges earlier this year, including Coinbase, Binance, and Bittrex, on the grounds that native tokens for blockchains like Solana (SOL), Cardano (ADA), and Polygon (MATIC) resembled traditional financial products.
State actions from states like Alabama, California, and New Jersey have accompanied those. Coinbase has asked for the federal action to be dismissed on the grounds that the SEC has no authority over cryptocurrencies.
