Nearly one year ago, Coinbase, one of the largest players in the cryptocurrency market, was reeling from losing its bid to dismiss the U.S. Securities and Exchange Commission’s (“SEC”) charges against it.[1] A judge had ruled that the SEC made a plausible argument that Coinbase was operating as an unregistered securities broker, exchange, and clearinghouse.[2] The main thrust of the case was determining whether certain major cryptocurrency assets were securities. Less than one year later, the SEC’s embattled Chair, Gary Gensler, stepped down in conjunction with a change in the Presidential administration, the SEC has shifted away from regulation by enforcement, and momentum has swung toward embracing innovation in the cryptocurrency industry.
Recently, Coinbase announced that the SEC was dropping its enforcement action, likely due to the SEC’s new leadership and broader political trends.[3] Coinbase CEO Brian Armstrong called this a “huge day” for the cryptocurrency industry, marking an end to what he described as unlawful attacks on cryptocurrency and looked forward to a new era of regulatory clarity.[4] Nonetheless, dropping the SEC enforcement action hardly brings clarity to the central issues that the SEC was attempting to litigate.
Coinbase’s big announcement signals that the SEC may no longer pursue regulation by enforcement against Coinbase and similar companies. However, the enforcement action involved Coinbase itself and not the cryptocurrency industry on a broader level.
The case that can potentially take cryptocurrency into a new age of regulatory clarity was filed by Crypto.com in October 2024.[5] Crypto.com alleged “that the SEC has unilaterally expanded its jurisdiction beyond statutory limits and separately that the SEC has established an unlawful rule that trades in nearly all crypto assets are securities transactions no matter how they are sold, whereas identical transactions in bitcoin (BTC) and ether (ETH) are somehow not.”[6] Furthermore, Crypto.com alleged that the SEC, as a result, overstepped its lawful authority in attempting to regulate the cryptocurrency market, has been inconsistent with applying securities laws to crypto assets, and made up the rules as it went along.[7] While these issues are essentially the same as those in the Coinbase enforcement action, they present a much bigger problem for the SEC in how it has and will regulate cryptocurrency across the board.
Coinbase sought dismissal of a single SEC enforcement action, but the Crypto.com action affirmatively seeks to bring about a clearer regulatory framework for the entire industry. Crypto.com stated that it “is committed to using all regulatory tools available to help bring certainty to the industry, including this petition for joint rulemaking under the Dodd-Frank Act.”[8]
Even though the SEC’s regulatory approach is softening, existing rules and regulations still lack the necessary clarity to gain more widespread acceptance. Cryptocurrency needs better clarity of rules and regulations to inspire greater market confidence, broader adoption, and better integration into financial systems. If anything, the SEC’s decision to dismiss the Coinbase enforcement action suggests that SEC leadership will be taking a less adversarial stance on cryptocurrency regulation and play ball with Crypto.com and other major players.
[1] Nikhilish De, Coinbase Loses Most of Motion to Dismiss SEC Lawsuit, CoinDesk (Mar. 27, 2024), https://www.coindesk.com/policy/2024/03/27/coinbase-loses-most-of-motion-to-dismiss-sec-lawsuit/.
[2] Id.
[3] Dave Michaels, Coinbase Says SEC Intends to Drop Lawsuit Against Crypto Exchange, The Wall Street Journal (Feb. 21, 2025), https://www.wsj.com/finance/regulation/coinbase-says-sec-intends-to-drop-lawsuit-against-crypto-exchange-4b3b0c36
[4] Id.
[5] See Kyle Torpey, Crypto.com Sues SEC Over Crypto Regulation After Wells Notice, Investopedia (Apr. 18, 2023), https://www.investopedia.com/crypto-com-sues-sec-over-crypto-regulation-after-wells-notice-8724838.; Crypto.com Sues SEC Amid Threat of Enforcement Action, PYMNTS.com (Oct. 18, 2024), https://www.pymnts.com/cryptocurrency/2024/crypto-com-sues-sec-amid-threat-of-enforcement-action/.
[6] Crypto.com, Complaint Filed Against SEC (Apr. 17, 2023), https://crypto.com/company-news/complaint.
[7] See id.; see also David Hirsch, Garen S. Marshall and Rhea Shahane, Crypto.com Sues the SEC in Texas: Arguments and Implications for the Cryptocurrency Industry, Subject to Inquiry (Oct. 21, 2024), https://www.subjecttoinquiry.com/2024/10/crypto-com-sues-the-sec-in-texas-arguments-and-implications-for-the-cryptocurrency-industry/.
[8] Note 5, supra.
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