Coinbase to Challenge SEC's Denial of New Crypto Rulemaking in Court

Coinbase's Chief Legal Officer, Paul Grewal, announced on Friday that the cryptocurrency exchange plans to challenge the Securities and Exchange Commission's (SEC) decision to deny its request for new digital asset regulation. The SEC, earlier in the day, rejected Coinbase's longstanding petition for new rules, deeming it "unwarranted."

Grewal, in a post on X, expressed Coinbase's intent to seek legal recourse against the SEC's refusal. He highlighted that after 18 months of waiting for a response, Coinbase went to court to compel the necessary reply. Despite the denial, Grewal stated that they would again approach the Third Circuit later to contest the SEC's perceived neglect of its responsibilities.

The ongoing clash between Coinbase and the SEC dates back to 2022 when the exchange requested new regulatory guidelines. Grewal mentioned that Republican SEC Commissioners Hester Peirce and Mark Uyeda disagreed with the denial, emphasizing the importance of constructive dialogue between regulators and the crypto industry.

Expressing gratitude for the dissenting Commissioners, Grewal asserted that collaboration should be prioritized to formulate laws and rules benefiting consumers and fostering U.S. innovation. He criticized the defensive stance of engaging in lawsuits based on legal positions that allegedly shift month after month.

While the SEC has not proposed specific rules for the crypto industry, it has introduced certain rulemakings applicable to the sector over the past year. Notably, the SEC reopened a custody rule mandating registered investment advisors to hold crypto with a qualified custodian and imposing specific requirements on those custodians.

In the past year, the SEC has also taken enforcement actions, including an ongoing case against Coinbase for allegedly operating as an unregistered exchange. Coinbase has urged the judge to dismiss that case.

SEC Chair Gary Gensler emphasized the agency's responsibility to allocate resources judiciously, considering the relatively small size of the crypto market compared to the broader capital markets it oversees. Gensler acknowledged challenges in the crypto market, such as fraud and noncompliance, but underscored the importance of maintaining discretion to focus on areas in the capital markets requiring updated regulation.