On January 14, 2024, the US-based cryptocurrency exchange Coinbase celebrated a partial triumph in its case with SEC. The U.S. Court of Appeals for the Third Circuit said in its decision that the SEC did not adequately explain why it denied Coinbase’s 2022 petition for rulemaking related to cryptocurrencies. Ripple vs SEC case and its outcomes could have had a role in this case’s outcome as well, but how?
This comes at a time when the SEC is under increasing pressures over its regulatory stance on Cryptocurrencies, as as Ripple Lab’s struggle with the SEC draws closer to a climax.
Ripple vs SEC Case Unfolds
The ruling ordered the SEC to offer a clearer explanation of its decision. The court found the SEC’s denial of Coinbase’s request for clearer rules on crypto assets was not sufficiently explained.
Coinbase Chief Legal Officer Paul Grewal celebrated the win on X, saying, “We just won our petition for a writ of mandamus.”
In delivering his opinion, Judge Stephanos Bibas harshly criticized the SEC pointing to the fact that the agency merely uses outdated rules while ignoring fraud connected to the crypto industry.
This is a win for Coinbase especially following increased probes into the SEC’s involvement in the nascent world of cryptocurrencies.
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Coinbase requested the SEC in 2022 for guidance on when a digital asset should be considered a security. Consequently, the SEC claimed that the majority of cryptocurrencies other than Bitcoin are securities and should be within its purview.
Coinbase, meanwhile, claimed that the absence of clear guidelines created legal uncertainty for the crypto market. The decision might make the SEC change its strategy, but the agency still can appeal the decision of the court.
What’s Happening Currently
The cryptocurrency Industry is in a very critical state as these cases might determine its legal environment. Perhaps, the most famous legal battle currently is the Ripple vs SEC case, the company behind the XRP token.
As this case approaches its turning point, Coinbase’s partial victory over the SEC brings new questions about how the legal environment might evolve and how it might affect Ripple’s case.
Ripple has been in legal dispute with the SEC since 2020. Ripple is under investigation from the SEC because they say the XRP token is an unregistered security.
This legal case is especially important for the growth of crypto in the United States. It may set forth the foundations for how the industry develops further in the United States.
In July 2023, Judge Analisa Torres ruled that XRP’s public sales on exchanges were not securities transactions. This ruling was a significant win for Ripple, but the SEC quickly filed an appeal.
The SEC must decide by January 15, 2025, whether to continue with this appeal. A decision to continue would likely extend the case for months, possibly years.
The timing of these legal battles is significant. SEC Chair Gary Gensler is set to step down on January 20, 2024. He will be replaced by Paul Atkins, who is known for his more crypto-friendly stance. Atkins has signaled support for reducing regulatory burdens and encouraging financial innovation.
What to Expect
Some legal experts suggest that Atkins may drop the SEC’s lawsuits against crypto companies, including Ripple. If true, this could mark a shift in the SEC’s approach. However, it is uncertain how much impact this change in leadership will have on ongoing cases.
The ongoing cases, including Ripple’s, have exposed inconsistencies in how U.S. courts treat cryptocurrencies. Some judges have sided with the SEC’s view that crypto is a security, while others have rejected it.
Judge Failla, who is overseeing Coinbase’s lawsuit, ruled in March 2024 that the case should move forward. However, she also recognized that conflicting decisions mean the matter should be addressed by a higher court.
This inconsistency highlights the need for clearer guidelines on how cryptocurrencies should be regulated. The legal ambiguity leaves crypto companies uncertain about the future and their ability to operate within the law.
