The ongoing battle between cryptocurrency exchanges and U.S. regulators intensified as Coinbase confronted the Securities and Exchange Commission (SEC) in a federal appeals court in Philadelphia.
Legal Clash Between Coinbase and the SEC
The legal dispute centers on Coinbase’s attempt to compel the SEC to create new rules specifically for digital assets. Coinbase filed a lawsuit against the SEC in 2022 after the regulator denied the exchange’s petition for rulemaking in December 2023. The petition sought clarity on whether certain digital assets are securities and urged the SEC to establish a new regulatory framework compatible with cryptocurrencies. Coinbase has argued that the existing regulations are insufficient and have made it nearly impossible for the firm to comply with U.S. laws.
Legislative Pressure on the SEC
More than 40 U.S. Republican lawmakers recently called for the repeal of a controversial SEC rule related to crypto custody, known as Staff Accounting Bulletin No. 121 (SAB 121). The rule, which mandates that entities holding cryptocurrencies must record them as liabilities on their balance sheets, has faced bipartisan criticism for stifling financial innovation and weakening consumer protections. Critics of SAB 121, including Democratic House Representative Wiley Nickel, argue that the rule would prevent U.S. banks from offering cryptocurrency custody services, leading to greater reliance on non-bank entities and potentially increasing risks for consumers.
Implications and Next Steps
As the SEC continues to defend its regulatory approach, the crypto sector remains in a state of uncertainty, navigating an evolving landscape shaped by both legal challenges and political opposition. The House Financial Services Committee is scheduled to meet with SEC officials on September 24, where these issues are expected to be at the forefront of discussions.
The clash between Coinbase and the SEC underscores the tension between the crypto industry and regulators. The outcome of the case is expected to have a significant impact on the future regulation of digital assets in the U.S.
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