Former DOJ Attorney: SEC v. Coinbase Could Redefine US Crypto Regulation

The U.S. Securities and Exchange Commission has filed a lawsuit against Coinbase, accusing the exchange of facilitating unregistered securities trading. The outcome of this case may have far-reaching effects on the regulatory framework governing cryptocurrencies in the U.S.

In an interview with Cryptonews.com, former Department of Justice Attorney Seth Goertz discussed the potential implications of the SEC v. Coinbase case. He emphasized that the case could redefine crypto regulations in the U.S., impacting not only Coinbase but also other exchanges and the broader market.

Potential Impact of SEC v. Coinbase Case

The SEC claimed that several cryptos listed on Coinbase qualify as securities and should have been registered under U.S. securities laws. This lawsuit represents an attempt by the Commission to assert regulatory control over the market, which has largely operated in a legal gray area.

In recent developments, Coinbase’s attempt to dismiss the case was denied, allowing the lawsuit to proceed. The court’s decision indicated that there could be enough merit to the SEC’s claims to warrant further examination.

Goertz highlighted the legal arguments from both sides. The SEC argued that the Howey Test, a legal standard used to determine whether an asset qualifies as a security, applies to particular cryptos traded on Coinbase.

Coinbase, on the other hand, maintained that the assets in question do not meet the criteria outlined in the Howey Test and therefore should not be subject to SEC regulation.

As the case progresses, the implications for the broader digital asset industry are significant. A ruling in favor of the SEC could lead to increased regulatory scrutiny and compliance requirements for crypto exchanges, potentially reshaping the market dynamics.

“If the courts say Bitcoin is a security, anyone has Bitcoin or anyone who’s trading Bitcoin in that way in an exchange. You’re going to be subject to the SEC,” said Goertz. The regulated trading platforms could include but not not be limited to Binance and OKX.

Alternative Future of Novelty Coins

Conversely, a ruling in favor of Coinbase could reinforce the industry’s stance on the decentralized nature of cryptocurrencies and their distinction from traditional securities.

“The point of cryptocurrency is to be decentralized finance that is outside of our standard market economy. And that’s where a lot of the allure and potential benefits lie,” stated Goertz.

“So now if you are regulated by the SEC, there’s less to differentiate, like Bitcoin for instance, from sort of our standard dollar, if they’re still being regulated the same way,” said Goertz. “When you start getting into stablecoins …what really is different between Tether and the dollar if they’re regulated by the same entities?”

He suggested that cryptos like Bitcoin, Tether, and Ethereum may be in the same bucket, yet things could go differently for some other cryptos even if the Commission wins the case, including Dogecoin .

“There’s a whole industry of novelty coins that is hard to see how they would fall under the Howey test of a security,” added Goertz. “They’re not all the same. And so they are going to have to be treated differently.”

SEC’s Overly Aggressive Regulation Attempt

According to Goertz, the SEC has been acting aggressively to regulate as much as the agency can since crypto has become mainstream and tied to the largest companies in the world.

“But I think it’s to be determined from their perspective, what they really are ultimately going to regulate and believe they can regulate,” said Goertz. “I think they run the risk of getting some bad rulings if they are too aggressive here.”

The lack of productivity of the Congress when it comes to crypto regulations might have driven the SEC to pursue clearer industrial guidelines.

“Congress has been on the sidelines,” said Goertz. “From the SEC’s perspective, Congress could solve a lot of this stuff simply by doing something. And so it does leave regulators like the SEC a little bit in the dark.”

Seth Goertz is currently a Partner at Dorsey Whitney LLP , specialized in white collar criminal defense, cybersecurity and crypto related investigations and fraud prosecutions.