Will Coinbase prevail amidst regulatory scrutiny?
- Coinbase could win its case against the SEC, according to an analyst.
- The Base network could be able to sustain its momentum as activity peaks.
Despite major institutions like BlackRock getting approval for their ETFs, Coinbase continued to fight against the SEC in its lawsuit.
The fight goes on
On the 6th of June 2023, the SEC initiated legal action against Coinbase, accusing the cryptocurrency exchange of violating federal securities laws.
On the 17th of January 2024, Bloomberg’s senior litigation analyst, Elliott Stein, chimed in and offered his thoughts on the ongoing battle.
Stein stated there was a 70% likelihood of Coinbase securing a complete dismissal.
Greetings from federal court in Lower Manhattan! Today's episode: @coinbase motion to toss the @SECGov suit. Should be a great (4hr long!) argument, with top lawyering, a fascinating/unsettled legal q, & Judge Failla – sharp as a knife & a sense of humor drier than the Sahara. pic.twitter.com/qwR4q4ZAkh
— Elliott Z. Stein (@NYCStein) January 17, 2024
Stein initially anticipated Coinbase could successfully challenge specific SEC claims, excluding those related to its staking rewards program and overall operational structure.
The SEC asserted that Coinbase, through staking customer assets and returning rewards, is involved in offering and selling investment contracts, subject to SEC regulation.
Additionally, the SEC claimed that Coinbase operated as an unregistered broker, a charge denied by the exchange.
A pivotal moment occurred when Coinbase offered a more precise definition of an “investment contract” than the SEC. They suggested an obligation to invest in a business rather than just an ecosystem.
However, Stein viewed Coinbase’s definition as more compelling. He drew attention to the SEC vs. Ripple [XRP] case, highlighting Ripple’s partial victory in July 2023.
The analyst argued that this precedent will likely influence the outcome of Coinbase’s lawsuit, as sales of digital assets on public exchanges do not neatly align with the Howey test for defining an investment contract.
For context, the Howey Test is a legal standard in the United States used to identify investment contracts subject to federal securities laws.
It focuses on elements such as an investment of money in a common enterprise with an expectation of profits primarily from the efforts of others.
The impact of the lawsuit can affect Coinbase’s layer 2 solution, Base, as well.
The number of daily active addresses on the network and the daily transactions on the network had reached a 3-month high at the time of writing.
A positive outcome from the lawsuit could help Base sustain this momentum.