Coinbase is eager to find out whether its digital asset trading should fall under the platform’s federal securities laws. Chief Legal Officer Paul Grewal exposed on X that they have asked the Second Circuit to review an interlocutory appeal.
He emphasized that such a fundamental question of law-whether the trades on the Coinbase platform were “investment contracts”-demands guidance long ago. Grewal reasons that Coinbase does not list securities, and the issue has hamstrung the industry for years.
Coinbase’s legal filing brings to the fore a paramount issue: the SEC’s sway over transactions of secondary-market digital assets. Top of the list is the regulatory certainty side, as the digital coin market has exceeded 3 trillion dollars in value.
The platform contends that its bid-ask system binds buyers and sellers without the addition of post-sale liabilities. So the trades merely act as asset sales, not securities transactions. This difference was earlier led by the SEC and Coinbase’s offering of a public listing in 2021.
Yet, two years later, the SEC decided to take a new stance. As a result, the platform became the defendant of a lawsuit, in which it is accused of operating an unregistered securities exchange. The Howey Test is a legal case that needs various interpretations to find a solution for it. This test, conceived by the US Supreme Court, aims to determine whether a contract is an investment contract. It is the premise of the SEC’s argument.
Coinbase argues trades are not securities transactions
Coinbase has put forward the argument that transactions of digital assets on the secondary market ought not to be regarded as securities. They further argue that the SEC doesn’t command any regulatory jurisdiction. However, the district court declined Coinbase’s judgment request but recognized that the case raised a substantial legal issue.
This appeal is crucial in determining the applicability of securities laws to digital asset transactions. A win for Coinbase would dismiss the SEC claims on many points. Because of the conflicting judgments by the district courts in different states, the case can potentially bring the necessary legal clarity to the broader crypto industry.
The team from Coinbase thinks that this appeal is the right opportunity to eliminate the insecurity of digital assets concerning the application of securities laws. In the case, the judge decides that Coinbase’s transactions are not securities, and a large part of the SEC’s charges will be dismissed.
