KEY POINTS
- The legal saga began in June 2023 when the SEC initiated a lawsuit against Coinbase
- This legal action has since been closely watched within the cryptocurrency industry and the broader financial sector
- Coinbase is the custodian of 10 in 13 spot Bitcoin ETFs
Coinbase, a global cryptocurrency exchange platform renowned for its substantial trading volume, seems poised for a notable victory in its ongoing lawsuit with the U.S. Securities and Exchange Commission (SEC), with an analyst projecting a 70% likelihood of the exchange achieving a complete dismissal of the lawsuit.
"I went into SEC v. Coinbase hearing thinking $COIN would, on this motion, win dismissal of SEC's primary claims (concerning trading) but maybe not staking and broker claims. I left thinking COIN would win full dismissal," Bloomberg Intelligence senior litigation analyst Elliott Z. Stein who said via tweet on X, formerly Twitter.
In his analysis, Stein emphasized that Coinbase's chances of a favorable outcome in this legal motion are indeed promising, and he assigned a 70% probability of the crypto exchange winning the motion.
"Coinbase is likely to win this motion, we think. The judge wanted a limiting principle to the SEC definition of "investment contract" that wouldn't encompass collectibles," Stein said, adding, "We view the one offered by Coinbase as more compelling, requiring investment in a business vs. just an ecosystem, along with an enforceable obligation."
The litigation analyst also underlined: "As the Ripple ruling in July suggested, sales of digital assets on public exchanges don't fit neatly into the Howey test for what constitutes an investment contract. Even if the case survives, it likely reaches the Supreme Court, which we think will narrow Howey. Coinbase's definition of 'investment' would also beat the SEC's staking claim. And Coinbase had good arguments that the SEC's allegations don't sufficiently plead that it was performing broker functions."
Stein additionally provided a timeline for the anticipated ruling, suggesting that it could potentially be delivered by the end of the second quarter 2024.
However, he noted the possibility of an earlier resolution due to the judge overseeing the case being notably efficient in handling the proceedings.
I went into SEC v. Coinbase hearing thinking $COIN would, on this motion, win dismissal of SEC's primary claims (concerning trading) but maybe not staking and broker claims. I left thinking COIN would win full dismissal. Snippet below and full note here: https://t.co/UfjiByMLzS https://t.co/7Y2Z93Nrwt pic.twitter.com/yLUUEwdVkl
— Elliott Z. Stein (@NYCStein) January 19, 2024
The legal saga began in June 2023 when the SEC initiated a lawsuit against Coinbase.
The allegations encompassed violations of securities laws, including the sale of unregistered securities and the operation of an unregistered exchange/broker agency.
This legal action has since been closely watched within the cryptocurrency industry and the broader financial sector.
"The SEC alleges that, since 2019, Coinbase has been engaging in an unregistered securities offering through its staking-as-a-service program, which allows customers to earn profits from the 'proof of stake' mechanisms of certain blockchains and Coinbase's efforts," the regulator said in a press release in June 2023.
"Since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities. The SEC alleges that Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law," the commission alleged.
Notably, Coinbase holds a predominant position in the majority of approved spot Bitcoin exchange-traded Funds (ETFs), serving as either an issuer or custodian responsible for safeguarding BTC assets in 10 out of the total 13 spot Bitcoin ETFs that have received approval.
