Coinbase Initiates Legal Action Against SEC Over Lack of Crypto Regulation, Urging Clarity

In a recent development, Coinbase has taken legal action against the Securities and Exchange Commission (SEC), seeking a court order to compel the regulatory authority to establish clear guidelines for the cryptocurrency sector.

Outlined in their court submission on March 11, Coinbase’s lawsuit challenges the SEC’s failure to enact formal rulemaking for the crypto industry, arguing that such inaction impedes the sector’s growth and creates uncertainty.

Criticism of SEC’s Regulatory Inaction

The lawsuit criticizes the SEC for its passive approach to crypto regulation, highlighting the absence of specific rules that have left the industry operating in a regulatory gray area.

Coinbase contends that the SEC’s lack of clarity not only stifles innovation but also places companies at a disadvantage due to uncertain compliance requirements.

According to Coinbase, rulemaking is essential for the SEC to delineate clear boundaries for digital assets, provide fair notice to market participants, and establish a regulatory framework conducive to compliance with securities laws.

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Coin Base’s Petition and Lawsuit

In July 2022, Coinbase submitted a petition urging for digital asset securities regulation. However, the SEC disregarded the petition, offering only a brief statement disagreeing with the claim that the current regulatory landscape lacks feasibility.

Despite the SEC’s heightened focus on digital assets, Coinbase asserts that the authority has maintained a hostile stance and pursued aggressive enforcement measures.

The lawsuit aims to address two primary issues:

1. Whether the SEC’s refusal to engage in rulemaking regarding digital assets violates the Administrative Procedure Act.
2. Whether the SEC’s failure to provide a reasoned explanation for denying Coinbase’s rulemaking petition constitutes arbitrary and capricious behavior.