In a noteworthy exchange during the Coinbase SEC case hearing, Fox Business reporter Eleanor Terrett questioned the Securities and Exchange Commission’s (SEC) lawyer about Bitcoin’s nature as an effective currency. The SEC lawyer stated that the regulatory body does not control all digital assets on Coinbase, emphasizing that Bitcoin is the sole non-securitized asset among the tokens listed on the platform.
Bitcoin is Different
The SEC lawyer evaded a direct answer on the effectiveness of bitcoin as a currency and emphasized that bitcoin differs from other digital assets because it lacks an ecosystem, stating:
“Bitcoin is different from other cryptos. What makes Bitcoin different is that it does not have an ecosystem, whereas this is different from other tokens. Because when you buy a different token, you buy their entire ecosystem and the entire incentive.”
During the court hearing, Coinbase fiercely contested the SEC case against it, asserting that the digital assets traded on its platform do not fall under the category of securities. This courtroom battle is a significant development that could reshape the regulatory landscape for digital assets, ultimately determining the SEC’s jurisdiction over the sector.
Related reading: SEC’s Battle on “Unregistered Securities”: What is the Regulator Up To?
As the case unfolded, Judge Katherine Polk Failla raised a critical question, drawing attention to Senator Lummis‘s suggestion to dismiss the case. The judge noted Lummis’s substantial involvement in the digital asset space. She asked:
“She is not just a random senator; She is someone who is deeply involved in this space. Why is she wrong?”
The SEC lawyer, however, dismissed the senator’s input, asserting that one senator’s opinion should not override a 90-year-old securities law.
However, Judge Failla did not seem convinced, referencing the Howey Test and suggesting that the U.S. Securities Act of 1933 might be outdated in the context of rapidly evolving technologies like digital assets. She remarked:
“We’ve had a good run. We’ve had 90 years where these securities laws have been able to apply to these markets. But now we have something new.”
Coinbase SEC Case
The SEC initiated the lawsuit against the exchange in June 2023, alleging that the platform facilitated the trading of at least 13 digital asset tokens that should have been registered as securities.
The SEC alleged that Coinbase was operating illegally as a national securities exchange, broker, and clearing agency without proper registration. Notably, the regulatory body scrutinized Coinbase’s “staking” program, asserting that it should have been registered with the agency.
Coinbase sought dismissal of the lawsuit in August, citing a favorable ruling in the Ripple Labs case, where a judge concluded that the sale of XRP did not violate federal securities law.
However, the SEC countered the exchange’s argument, citing a prior ruling in the Terraform Labs case that upheld the regulator’s stance.
This legal confrontation underscores the broader clash between digital asset companies and the regulatory body over the classification of tokens as securities, with the outcome likely to shape future regulatory approaches within the digital asset space.
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