New era dawns on crypto industry with SEC dismissal of Coinbase case

Coinbase, the largest cryptocurrency trading platform in the world, got its start in 2019 offering a marketplace where investors could buy and sell hundreds of cryptocurrencies. However, the extremely volatile asset faced increased scrutiny during the Biden administration due to the industry being ripe with fraud, with the collapse of FTX sending shockwaves among investors.

On Thursday, the SEC said it dismissed the case due to its upcoming priority to create a “comprehensive and clear regulatory framework for crypto assets,” through the newly formed Crypto Task Force.

“For the last several years, the commission’s views on crypto have been largely expressed through enforcement actions without engaging the general public,” Acting SEC Commissioner Mark Uyeda said in a press release. Uyeda is steering the agency while Paul Atkins, a strong crypto backer tapped by Trump, awaits Senate confirmation.

Coinbase Chief Legal Officer Paul Grewal said, “It’s official: case dismissed. Time for fair legislation for the entire industry,” according to a statement on X, formerly Twitter.

Under former SEC Chair Gary Gensler, the agency believed the most direct way to protect investors was to treat crypto as an investment contract, which is considered a security and requires registration.

Coinbase refused to register, though, and in June 2023 was charged with operating an unregistered securities exchange, brokerage, and clearing agency, along with the unregistered offer and sale of securities in connection with a staking-as-a-service program.

The exchange petitioned the SEC in July 2022 to draft rules for crypto, but in December 2023 the agency denied the request.

Grewal announced the pending dismissal last week, referring to it as “righting a major wrong.” From the company’s perspective, the SEC allowed Coinbase to go public in April 2021 and “two years later, they sued us,” he said. Grewal attributed the agency’s suit to political leadership, not validity.

“After millions in legal costs and fees, countless employee hours and years of protracted litigation, we have successfully protected our customers’ rights and held the SEC accountable,” Grewal said. “This is a victory not just for Coinbase but for our customers, the United States, and individual freedom.”

Commissioner Hester Peirce, a Republican, concurred with Grewal in a statement, referred to the agency’s case as “large-scale regulation-by-enforcement … [that] harmed the American public, adversely affected the industry, and impeded the ability of the commission’s skilled and dedicated professional staff to use their expertise as it was intended to be used.”

The SEC is now on the right track by taking the reins away from the enforcement staff and handing them to the policy staff to draft crypto regulations, she said.

However, Commissioner Caroline Crenshaw, a Democrat, vehemently disagreed with the dismissal, calling it “unprecedented,” and not backed up by court opinion. Crenshaw, appointed by Trump in his first term to fill a vacant Democratic seat, cited other SEC cases, including those against Binance and Payward Ventures, in which the courts ruled in favor of enforcement.

While Uyeda and Peirce have argued Gensler’s previous approach of “regulation by enforcement” created uncertainty, Crenshaw said the dismissal ignores existing law and therefore leads to further uncertainty.

“How can we pursue fraudulent conduct in this space while casting doubt on our regulatory jurisdiction? Are we eroding our ability to police fraudulent Ponzi schemes? Are we poised to give special treatment to crypto assets over traditional assets, or even other emerging assets?” she questioned. “Whatever the law may be tomorrow, market participants should not be able to avoid the law as it stands today.”

Consumer watchdog group Public Citizen warned about an unfettered crypto industry.

“The new SEC stance will enable crypto to penetrate further into the economy, not only putting consumers at risk when the crypto bubble inevitably collapses, but posing an increasing systemic threat to the overall financial system,” Robert Weissman, co-president of Public Citizen, said in a statement.

News of the dismissal has done little to solidify a shaky crypto market, which has seen prices fall after a euphoric rise since Trump’s return to office.