On February 21, Coinbase announced that the U.S. securities regulator is planning to withdraw its lawsuit against the cryptocurrency exchange, bringing an end to a long legal battle that was once seen as a significant threat to the platform and the wider sector.
The Securities and Exchange Commission (SEC) has swiftly revamped its strategy for regulating the crypto industry following the change in leadership under the new president. They have set up a dedicated task force and revoked key accounting guidance related to cryptocurrencies.
The SEC, which refrained from commenting, was anticipated to reevaluate ongoing court cases and retract its litigations even before making changes to its regulations, according to previous reports by Reuters. The decision to recommend dropping the lawsuit against Coinbase, which is among several lawsuits filed during the tenure of the prior SEC chair, marks a significant shift under the current Republican leadership.
Coinbase's Chief Legal Officer Paul Grewal remarked in an interview, "The war against crypto, at least as it applies to Coinbase, is over."
In a blog post, Coinbase stated that SEC staff has "agreed in principle" to dismiss the case, pending final approval by the commission.
Under the interim Republican leadership, the SEC has begun revising its policies concerning cryptocurrencies, even before the appointment of Trump's preferred SEC chair.
The SEC had filed lawsuits against both Coinbase, the largest U.S. crypto exchange, and the rival platform Binance in 2023. The agency dismissed the case against the other firm following a request from the SEC and Binance, citing the impact of the new task force.
The SEC had accused Coinbase of violating its regulations by enabling trading of at least 13 crypto tokens that should have been registered as securities. The lawsuit also targeted Coinbase's "staking" program, which the SEC claimed should have been registered with the agency.
Coinbase argued that crypto assets differ from traditional securities and should not be classified as investment contracts, a stance that aligns with the majority of the crypto industry. As per a U.S. Supreme Court ruling, a key criterion for determining if an investment product is a security is whether it involves investing in a common enterprise with the expectation of profit.
The group Better Markets, advocating for stricter oversight of the financial sector, criticized the SEC's decision to drop the lawsuit against Coinbase as "a historic mistake."
Coinbase's shares rose by over 3.5% in response to the news, with analysts at Piper Sandler mentioning that the dismissal of the case would alleviate concerns that had kept some investors cautious for nearly two years.
Under the previous Democratic leadership, Gary Gensler had prioritized combating misconduct in the sector, targeting not only fraudulent activities but also the larger firms like Coinbase that facilitate cryptocurrency trading. As part of that effort, the agency created a crypto enforcement unit.
Presently, the SEC has scaled back its enforcement actions in the crypto space, reallocating resources and renaming the unit to focus on "cyber and emerging technologies".
Acting SEC Chair Mark Uyeda and Republican Commissioner Hester Peirce have critiqued Gensler's legal approach and advocate for new crypto-specific regulations.
“We have a very positive, productive relationship with this new SEC and are working (in) lockstep with them, arm in arm, to get this addressed,” Grewal stated.
Peirce, often referred to as "crypto mom" within the sector, is leading the agency's efforts to revise its policy. The task force has conducted at least eight meetings to discuss potential changes, as indicated in public logs on the SEC's website.
Richard Levin, chair of the Fintech practice at law firm Nelson Mullins Riley & Scarborough, expressed his expectation that significant cases would be resolved in the coming months.
During his initial week in office, Trump was tasked with proposing new regulations for digital assets and exploring the establishment of a national cryptocurrency reserve, fulfilling his promise to promptly revamp U.S. cryptocurrency policy.
Trump, known for his campaign pledge to be a "crypto president" and his efforts to attract support from the industry, also ordered protection of banking services for cryptocurrency companies in an executive order. This move addressed claims that regulators had instructed banks to sever ties with crypto firms.