Coinbase Pushes US Appeals Court to Rule Crypto Trades Aren't Securities
Coinbase has filed a petition with the U.S. Second Circuit Court of Appeals to clarify whether cryptocurrency is subjected to federal securities laws.
In a filing submitted on Tuesday, Coinbase’s legal team emphasized that this case provides “the single best opportunity to decide the fundamental legal question of how to treat the secondary trading of digital assets.”
Coinbase argued that the issue demands urgent judicial attention due to its implications for the crypto industry. “This case cries out for the Court’s immediate attention," the exchange said.
"Whether secondary-market trading of digital assets falls within the federal securities laws is a question of immense importance to the crypto industry, consumers, financial institutions, and lower courts in need of guidance. This case presents an ideal vehicle to address that question and provide clear rules for this multi-trillion-dollar industry.”
Citing the Howey test, Coinbase contends that transactions conducted on its platform should not be classified as securities under federal law. Secondary transactions on the platform do not meet all aspects of the test because buyers and sellers operate in a blind bid-ask system, remaining anonymous to one another, Coinbase argued.
The petition follows a decision by a Southern District of New York (SDNY) judge on January 7 that granted Coinbase with a rare stay in the US Securities and Exchange Commission (SEC) lawsuit against the company. The SEC sued Coinbase in June 2023 on the basis that Coinbase was operating as an unregistered securities exchange, broker, and clearing agency.
The judge in January referred the legal questions to the appeals court, stating, “conflicting decisions on important legal issues necessitate the Second Circuit’s guidance.”
Last month, Coinbase claimed that recent letters from the Federal Deposit Insurance Corporation (FDIC) prove a coordinated effort to stifle the growth of the cryptocurrency industry.
The FDIC letters were sent to banks in 2022, urging them to reconsider relationships with crypto firms. These letters highlight concerns over risk management, fraud, consumer protection, and financial stability, warning institutions about the potential dangers of offering services to digital asset businesses.
Coinbase sees these warnings as part of a broader strategy by U.S. regulators to block crypto companies from accessing traditional banking services. The company argues that this represents a modern-day version of "Operation Choke Point," a controversial initiative launched in 2013 under the Obama administration. The original program aimed to cut off high-risk industries, such as payday lenders and gun dealers, from banking services.