YEREVAN (CoinChapter.com) — Coinbase, a prominent cryptocurrency exchange, has asked the Second Circuit Court of Appeals to decide whether crypto trades are securities. The request is part of the exchange’s defense against a lawsuit by the Securities and Exchange Commission (SEC).
In a Jan. 21 filing, Coinbase stated that determining whether secondary market crypto transactions qualify as investment contracts under securities laws is a critical issue. Coinbase explained,
“This case presents an ideal vehicle to address that question and provide clear rules for this multi-trillion-dollar industry.”
The company argued that inconsistent regulations leave market participants uncertain about compliance. Coinbase said the lack of clarity creates differing rules in various jurisdictions, making it difficult for the SEC or Congress to establish regulatory oversight.
SEC’s Allegations Against Coinbase
The SEC filed a lawsuit against Coinbase in June 2023, alleging it operated as an unregistered securities exchange. It accused the platform of failing to register as a broker, national securities exchange, or clearing agency. The SEC also claimed Coinbase evaded securities market disclosure requirements.
In response, Coinbase argued that trades on its platform are not securities transactions but simple asset sales. The exchange stated in its filing,
“The sellers and buyers are anonymous to each other, make no exchange or promise other than the sale of the digital asset itself.”
Coinbase highlighted the distinction between digital assets and traditional securities. It pointed out that buyers of digital assets do not gain rights against asset issuers, unlike securities like stocks or bonds.
Legal Discrepancies Fuel Coinbase’s Appeal
The appeal follows a Jan. 7 ruling by federal judge Katherine Failla, who allowed Coinbase to pursue an interlocutory appeal. Judge Failla noted conflicting decisions in cases involving Ripple Labs and Terraform Labs, where courts interpreted securities laws differently.
Coinbase emphasized the importance of resolving these inconsistencies. It stated that the appeal offers a critical opportunity to determine how digital asset trades should be treated under securities regulations. Coinbase wrote,
“The question has divided several district courts.”
The company also argued that this case provides the best chance to address the legal framework for secondary digital asset trading. It added,
“This appeal presents the single best opportunity to decide the fundamental legal question of how to treat the secondary trading of digital assets.”
