Coinbase Seeks to Take Core Question in U.S. SEC Case to Higher Court

Coinbase has filed an intermediate appeal with a higher federal court on Friday, aiming to clarify the SEC’s position regarding digital assets in the ongoing crypto industry dispute. This action comes as the main SEC case continues its way through the legal system.

Coinbase, a U.S.-based cryptocurrency exchange, has submitted an interlocutory appeal to the Second Circuit Court of Appeals regarding a specific disagreement in the ongoing legal dispute with the Securities and Exchange Commission (SEC). This appeal focuses on the argument that the SEC cannot classify a digital asset transaction as an investment contract if it doesn’t involve any obligations from the asset’s original issuer.

Appeals of this kind are usually futile, as demonstrated when the SEC made a similar attempt in its lawsuit against Ripple and was unsuccessful. However, if such an appeal were successful, it could potentially advance the industry towards a definitive U.S. Supreme Court decision on the issue.

The SEC has authority over investment contracts, which includes certain crypto transactions. If such a transaction falls under this category, it must comply with relevant laws and regulations. However, there is ongoing debate within the industry and legal circles about whether most digital assets should be considered securities. Coinbase and other companies argue that once these assets are traded on secondary markets and no longer connected to their issuing businesses, they fall outside the SEC’s jurisdiction. The resolution of this dispute is crucial for the development of the U.S. cryptocurrency sector.

Last month, Judge Katherine Polk Failla from the U.S. District Court for the Southern District of New York decided that the Securities and Exchange Commission (SEC) had provided sufficient evidence to support their accusations against Coinbase. As a result, most of the case will proceed. However, Coinbase is allowed to challenge one aspect of this decision through an appeal. For the appeal to advance, both Judge Failla and the Second Circuit must agree. If the appeal is accepted, the remainder of the case will continue in Judge Failla’s court while the SEC and Coinbase prepare for trial.

The ongoing legal dispute between the SEC and Coinbase is seen as a pivotal moment for the US cryptocurrency sector. The regulatory body has experienced varying outcomes, including defeats like against Ripple, and victories such as in the Terraform Labs case and an insider-trading case linked to Coinbase.