Coinbase References Binance Token Case in Petition to SEC

In a legal battle that has captured the attention of the cryptocurrency industry, Coinbase is relying on a landmark court ruling to strengthen its position against the U.S. Securities and Exchange Commission (SEC).

The decision in question was rendered by Judge Amy Berman Jackson in the case SEC vs. Binancewhere it was determined that secondary sales of Binance’s BNB token are not considered securities transactions under the Howey Test guidelines.

Accusations of inconsistency in rule-making

The decision provided Coinbase with a legal precedent to challenge the SEC’s current regulatory approach. The confrontation escalated as Coinbase accused the SEC of crafting inconsistent and arbitrary rules.

In a strongly worded letter from its lawyers, Coinbase criticized the SEC for failing to provide a clear and coherent explanation of its regulatory procedures, accusing the agency of attempting to retroactively enforce those rules on the digital asset industry through aggressive legal actions.

Tensions between Coinbase and federal agencies escalated with Coinbase filing a lawsuit on June 27 against the SEC and the Federal Deposit Trust Corporation. The lawsuit alleges that the agencies conspired to exclude the crypto industry from the banking sector.

Source: Court Listener

It further accuses them of violating the Freedom of Information Act by failing to provide necessary documentation on regulatory deliberations, including regarding Ethereum’s transition to a staking-based digital asset ecosystem.

The lawsuit isn’t the first time the SEC’s classification of digital assets has been challenged. In 2018, then-SEC CFO William Hinman said Ethereum’s cryptocurrency, ETH, was not a security, citing its decentralized smart contract protocol.

This statement later played a crucial role in Ripple Labs’ defense against the SEC’s accusations that Ripple’s XRP token was an unregistered security. Ripple Labs argued that the SEC lacked consistent criteria for defining what constitutes a “securities contract.”

Internal criticism and legal complications

The inconsistencies in the SEC’s approach have not gone unnoticed within the agency itself. SEC Commissioner Mark Uyeda has been outspoken in his criticism of the SEC’s problematic relationship with the cryptocurrency industry, reflecting internal disagreements over the agency’s strategy.

The legal landscape was further complicated by another ruling by Judge Analisa Torres in the SEC v. Ripple Labs case.

Judge Torres established that while secondary sales of XRP did not constitute the sale of unregistered securities, initial sales to institutional investors did, based on the nature of the transactions rather than the characteristics of the digital asset itself.

Amid these legal wrangles, the political and regulatory environment for cryptocurrencies in the United States is showing signs of change.

Changing political and regulatory environment

Cryptocurrency venture capitalists have noted a shift in political attitudes toward the industry, which was evident when Ether exchange-traded funds received rapid approval in May. This approval significantly boosted market confidence, demonstrating a more accommodative regulatory stance.

The legislative response has also been remarkable. The House of Representatives passed the 21st Century Act (FIT21) with bipartisan support in May.

The law aims to clarify the role of government agencies in regulating digital assets, responding to a persistent demand from the cryptocurrency industry for clearer guidelines.

Despite these positive developments, challenges remain. Cosmo Jiang, Managing Partner at Pantera Capital, has observed a trend of blockchain entrepreneurs relocating overseas due to the uncertain regulatory environment in the United States. Jiang expressed concern about the loss of a generation of talented entrepreneurs who have moved their operations to more crypto-friendly jurisdictions.

The SEC’s recent complaint against Consensys, the parent company of the MetaMask wallet, further highlights the regulatory challenges facing the industry.

Filed on June 28, the complaint accuses Consensys of operating as an unregistered broker-dealer and engaging in the sale of unregistered securities since 2020. Consensys countered by arguing that the SEC does not have the authority to regulate software interfaces like MetaMask.

As the political climate surrounding cryptocurrencies continues to evolve, industry players remain cautious. Carlos Pereira, partner at Bitkraft Ventures, noted the mixed reactions of political campaigns to the growing popularity of cryptocurrencies.

He noted that the results of the upcoming presidential election in November could have a significant impact on the sector, with different administrations likely to adopt divergent regulatory approaches.

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