The US Securities and Exchange Commission’s refusal to engage with the cryptocurrency sector is causing “paralysing uncertainty in the industry” while putting companies like Coinbase (NASDAQ:COIN) at risk and causing great “potential for harm”, Coinbase lawyers told the US Court of Appeals of Monday.
Coinbase’s missive against the SEC calls on Gary Gensler’s hawkish regulator to respond to the Nasdaq-listed cryptocurrency exchange’s 2022 detailed petition asking for regulatory guidance for the nascent sector.
Over 1,700 entities have submitted comments in support of Coinbase's petition, which the SEC has chosen to ignore.
In a blog post published in tandem with the legal action, Coinbase chief legal officer Paul Grewal stated that the SEC is required by law to respond to the petition “within reasonable time”.
“If the SEC says no to our rulemaking petition, which it has the right to do, then Coinbase would be allowed to challenge that decision in court and explain in that formal setting why rulemaking is required,” Grewal explained.
Coinbase and SEC acrimony deepens
Two years after being given the go ahead to list on Nasdaq, Coinbase is growing increasingly frustrated with the SEC’s recent clampdown in the cryptocurrency sector, which the exchange believes is in stark contrast to the regulator’s stance in 2021.
Coinbase’s lucrative staking programme, which allows users to earn a yield on their assets, with Coinbase taking a cut, is a particular bone of contention.
“Coinbase does not ask the Court to instruct the agency how to respond (to the petition). It simply requests that the Court order the SEC to respond at all,” read the writ filed by Coinbase on Monday.
Gensler has been largely dismissive of the industry’s calls for clarity, instead insisting that existing regulatory frameworks are sufficient.
Gensler said in December 2022 that it is “clear” that existing securities laws already apply to digital assets and platforms, and that they provided enough authority for crypto companies “to come into compliance” with the SEC’s rules.
Yet this appears to contrast with comments made in 2021 before Congress when Gensler stated: “Right now the exchanges trading in these cryptoassets do not have a regulatory framework either at the SEC, or our sister agency, the Commodity Futures Trading Commission, that could instill greater confidence.”
This apparent hypocrisy was not lost on Coinbase. “The Commission’s attempt to foist its new view onto the industry in this manner violates bedrock principles of due process and administrative law,” read the latest court action.
Neither Gensler nor the SEC has made a statement following Coinbase’s legal action.