Coinbase, the largest cryptocurrency exchange in the U.S., took action in federal court last month, asking the U.S. Securities and Exchange Commission (SEC) to respond to a petition the company filed last year seeking clarity for the digital asset industry.
This week, the SEC asked the court to reject the petition on the basis that Coinbase has not demonstrated the need for a regulatory framework. The Chamber of Digital Commerce, a blockchain trade association, said in a blog post that it stands with Coinbase in calling on the SEC to "do its job" and establish regulations for the industry.
"The Chamber of Digital Commerce firmly believes in fostering an environment that enables innovation to thrive and ensures impartial regulatory treatment for all participants in the digital asset industry," the organization wrote. "As the world’s leading blockchain and digital asset trade association, we stand in solidarity with Coinbase in their ongoing legal battle against the [SEC]."
Paul Grewal, Coinbase's chief legal officer, explained in an April blog post that Coinbase's court actions are intended to compel the SEC to provide a yes or no answer to a petition filed in July 2022 in which Coinbase asked the SEC to utilize its official rulemaking process to give guidance to the crypto industry. The purpose of the SEC's rulemaking process is for agencies to create regulations with the input of the public, Grewal said. The public can comment on proposed regulations, and courts can review the regulations to ensure that they are legal. Grewal wrote that "more than 1,700 entities and individuals have submitted comments to Coinbase’s petition echoing the request for clarity."
Under the Administrative Procedure Act, the SEC is required to respond to Coinbase's petition “within a reasonable time," Grewal said in the post. "If the SEC says no to our rulemaking petition, which it has the right to do, then Coinbase would be allowed to challenge that decision in court and explain in that formal setting why rulemaking is required," Grewal wrote. He emphasized the importance of agencies communicating their answers with the public, especially if the answer is no, because if they do not, the public never has the chance to go to court to determine if the agency's decision was appropriate.
Grewal added that because of the SEC's enforcement actions in the crypto industry, it seems like the agency's answer to Coinbase's petition is no, but that answer was never made public. He explained in the blog post that Coinbase's litigation is simply an attempt to make the SEC publicly answer the petition, which may seem unusual. He said that it is unusual, because it is not usually necessary. "But it is also unusual for an agency to bring enforcement actions based on a view of the law that it has not yet shared formally with the public," Grewal said.
The SEC has now asked the court to dismiss Coinbase's latest petition, saying that Coinbase has not demonstrated a need for regulatory guidelines, and the regulator is still considering the company's original petition from last year, CoinDesk reported. "Coinbase attempts an end run around the clear precedent foreclosing relief in these circumstances by arguing that all the Commission needs to do is memorialize its denial of Coinbase’s petition – a decision Coinbase incorrectly asserts has already been made," the SEC said. "But it is undisputed that there has not been any final agency action on its petition, and Coinbase’s argument is largely premised on the erroneous view that recent Commission enforcement actions indicate a Commission decision not to engage in rulemaking."
In its blog post, the Chamber of Digital Commerce commended Coinbase for its commitment to "compliance, consumer protection, and fostering a secure platform for users. Coinbase’s proactive engagement with regulators and its focus on establishing robust compliance frameworks have set a commendable example for the entire industry." The blog post said Coinbase's support for regulations is a contrast to the attitude of the SEC, "which claims to regulate an industry for which it stubbornly refuses to set clear and certain policies."
