The Securities and Exchange Commission (SEC) and Coinbase have been engaged in a heated debate for several weeks in the United States on how cryptocurrencies should be categorized. The situation is currently in a stalemate because, according to recent reports, Coinbase is disputing allegations made by the SEC that it broke securities legislation because of ambiguous regulations. The SEC, for its part, is dragging its feet when it comes to clarifying this hazy regulatory framework. However, according to a recent revelation made by attorneys working for the SEC, Coinbase was made aware of the fact that it was violating securities law in the country.

When the SEC engages in the politics of the ostrich

According to information obtained from The Block, the Securities and Exchange Commission (SEC) takes a questionable stance in a new investigation against Coinbase, stating that the cryptocurrency platform was fully aware that it violated federal regulations.

This statement, on the other hand, runs against the many persistent requests made by the American legislator and Coinbase, which are directed at demanding the establishment of clear guidelines to govern cryptocurrencies.

“Coinbase, a multi-billion dollar entity that is advised by a sophisticated attorney, claims that it was unaware that its conduct could violate federal securities laws. Furthermore, Coinbase suggests that by approving Coinbase’s registration statement in 2021, the SEC confirmed the legality of Coinbase’s underlying business activities – both at the time and in the future.»

Coinbase takes the initiative

The reaction from Coinbase did not wait for the Twitter account of Paul Grewal, who is the legal director of the cryptocurrency platform, as is standard practice. The latter highlights the detrimental attitude of the regulator who questions the validity of the Howey test due to the absence of a defined legislative framework.

This test is utilized rather frequently to establish whether or not a token can be classified as a security. If a set of requirements are satisfied, the asset in question will be categorized as a security according to the test. The application of the Howey test is crucial because, if a token is determined to be a security, it is required to comply with the relevant rules and regulations, such as registering with the Securities and Exchange Commission in the United States. This means that the Howey test must be applied.

On the other hand, Paul Grewal points out in his tweet the contradictions that exist among the members of the SEC, who, regarding their argument, deplores:

“They disregard the condition that is laid forth plainly in the Supreme Court’s ruling regarding the Howey case, which states that an investment contract must in the first place stipulate that the investor has rights that can be enforced against the issuer. When they authorised us to be listed on the stock exchange more than two years ago, they ignored their responsibilities to give proper respect to the protection of investors and the public interest. (…)”

Due to the fact that it is the weekend, the response from the judge is already anticipated for the following week. Coinbase, for its part, is continuing its struggle against the regulator with determination. This is pushed by investment giants made in the United States of America who picked him as their financial partner for their Bitcoin ETF application. Coinbase’s fight is being driven by investment giants made in the United States of America.

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