By Nermeen Nabil Khear 
Coinbase has petitioned the U.S. Second Circuit Court of Appeals to have secondary crypto transactions deemed not securities.
In a Jan. 21 filing, the crypto exchange emphasized that understanding if secondary market crypto transactions are investment contracts under securities laws is of “immense importance to the crypto industry.”
The appeal is part of Coinbase’s long-running dispute with the Securities and Exchange Commission (SEC). In June 2023, the SEC sued the exchange for operating as an unregistered securities exchange, broker, and clearing agency without required regulatory approvals.
SEC leadership changes signal a shift in crypto regulation
Apart from Bitcoin, which the agency has agreed should be treated as a commodity like gold or oil, the SEC has maintained that nearly every other digital asset is a security and, therefore, under its purview.
This also implies that most cryptocurrency issuers, exchanges, and custodians are breaking securities laws by failing to register with the SEC. As a result, the SEC has filed several well-known lawsuits against prominent issuers and exchanges. The first was filed in 2020 against Ripple.
This was followed by a string of enforcement actions led by Powell’s controversial successor, Chair Gary Gensler. In these cases, the SEC has argued that companies like Coinbase are breaking key laws by offering unregistered securities like Solana to investors on its platform.
Earlier this month, things took a different direction when Coinbase won its latest legal battle against the Securities and Exchange Commission. U.S. District Judge Katherine Failla ruled the company can take a closely watched case—which turns on whether cryptocurrencies are securities—directly to the U.S. Court of Appeals for the Second Circuit.
Judge Failla said that “conflicting conclusions” from judges overseeing the SEC’s cases against Ripple Labs and Terraform Labs saw varying interpretations of what constituted security.
Failla’s decision comes at a pivotal moment for the regulatory authority. Gary Gensler stepped down as chair in January following Donald Trump’s election, with Trump indicating a more crypto-friendly stance during his second term as president.
Some legal experts have suggested that the SEC might even drop its lawsuits against crypto companies under its new chair, former commissioner Paul Atkins.
Coinbase urges the courts to establish regulatory clarity for the crypto industry
The Coinbase petition follows Failla’s response, which authorized Coinbase to take an interlocutory appeal this past month.
In its filing, Coinbase made the point that there is an urgent need for regulatory clarity in the crypto industry, which it called a “multi-trillion-dollar industry.”
The exchange said that the transactions in digital assets on its platform are asset sales, not trading in securities. It pointed out that in these transactions, the buyers and sellers remain anonymous, and there are no ongoing obligations between the parties after the sale, which is not the case with securities like stocks or bonds.
According to Coinbase, this case offers the perfect chance to resolve whether transactions in digital assets in the secondary market are investment contracts. Without clarity, market participants face different rules before different courts, and neither the Commission nor Congress can be certain who regulates digital asset trading.
In Failla’s 23-page ruling, the move reflects the disagreement among judges about how to enforce existing securities laws for the crypto sector, with the hope that the matter can be settled as it moves up the judicial food chain. However, the appeals court still has to agree to hear the case.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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