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The United States Securities and Exchange Commission (SEC) has rejected a Coinbase request for rulemaking concerning transactions involving cryptocurrencies classified as securities. Coinbase submitted the petition in July 2022 and consistently sought a response.
SEC chair Gary Gensler revealed the commission’s decision in a statement on December 15. He provided three justifications for denying Coinbase’s petition, which sought “rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.”
Gensler initially contended that current laws and regulations are already applicable to cryptocurrency. His wording was carefully chosen:
“There is nothing about the crypto securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws.”
Paul Grewal, Coinbase’s chief legal officer who endorsed the petition, anticipated this argument and included a discussion of the Howey test and Reves decision—U.S. Supreme Court “articulations” that are essential to contemporary securities law. Gensler addressed the arguments presented in the Coinbase appendix, which was the only section of the 32-page petition he directly responded to.
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Gensler further stated that the timing is not appropriate for the rulemaking suggested by Coinbase. He mentioned that the SEC is presently seeking feedback on rules relevant to cryptocurrency. Lastly, Gensler noted that rulemaking is conducted at the agency’s discretion:
“We thoughtfully consider the timing and priorities of our regulatory agenda and how to best utilize our talented and hardworking staff.”
SEC commissioners Hester Peirce and Mark Uyeda issued a joint statement expressing their disapproval of the decision. They recognized the latter two points raised by Gensler but indicated that the concerns highlighted in the petition warranted attention. “Any exploration of these issues should include public roundtables, concept releases, and requests for comment, which would afford us the opportunity to hear from a wide range of market participants and other interested parties,” they stated.
In April, nine months after submitting the petition and one month after receiving a Wells notice warning that the SEC might take legal action against it, Coinbase filed a writ of mandamus, which would compel the SEC to respond to its petition under court order. The SEC responded in May, asserting that Coinbase has no entitlement to mandamus and that rulemaking could require years.
Following additional court filings, the SEC committed to addressing the Coinbase petition by December 15.
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