On April 24, 2023, in a bold move, Coinbase took legal action against the SEC to push for regulatory clarity in the cryptocurrency industry. The company filed a narrow action in federal court, asking the SEC to respond to its July 2022 petition, which requested the agency to use its formal rulemaking process to provide guidance for the crypto industry. The rulemaking process allows agencies to develop regulations with public input and have their position submitted for judicial review. Apparently, over 1,700 entities and individuals have submitted comments to Coinbase’s petition, thereby demonstrating the request for further clarity.
If the SEC denies the petition, Coinbase will have the right to challenge that decision in court and explain why rulemaking is necessary. Therefore, for Coinbase it is crucial for the SEC to respond, especially if the answer is no. Coinbase is not asking the Court to instruct the agency how to respond. The company is simply requesting that the Court order the SEC to respond as it is legally obligated to do.
The SEC’s public statements and enforcement activity in the crypto industry indicate that the agency has likely already decided to deny Coinbase’s petition. However, the SEC has not yet made this decision public. As a result, Coinbase has asked the court to compel the SEC to respond during the SEC’s recent blitzkrieg of enforcement actions in the cryptocurrency space.
This action may seem unusual, but according to Coinbase, it is necessary, as an agency bringing enforcement actions based on a view of the law that it has not yet formally shared with the public is also unusual. Coinbase argues that regulatory clarity is long overdue for the crypto industry.