Coinbase, one of the largest cryptocurrency exchanges in the world, has won an important legal victory in its ongoing court case with the US Securities and Exchange Commission (SEC).
On January 7 2025, a US District Judge approved Coinbase’s request to take the case to a higher court, where crucial questions about cryptocurrency regulations will be reviewed.
This approval pauses the current case and allows Coinbase to challenge the SEC’s claims that some of the digital assets on its platform are unregistered securities.
The outcome of this appeal could have a major impact on the future of crypto laws in the US.
What’s at stake in the appeal?
Coinbase has long argued that many of the digital assets it lists are not securities under US law.
The SEC alleges that Coinbase is operating like an unregistered securities exchange, accusing it of listing tokens that should be considered securities, subject to specific regulations.
The legal debate centres around the application of the Howey Test, a rule used to determine whether an asset qualifies as a security.
Coinbase insists that most tokens traded on its platform do not meet the criteria of this test because they do not involve an investment contract where token issuers owe specific promises or obligations to buyers.
By winning approval for an appeal, Coinbase will now get a chance to present its case to the US Court of Appeals for the Second Circuit. If the court agrees with Coinbase, it could establish a major legal precedent for the entire cryptocurrency industry.
This could potentially clarify whether digital assets like tokens should be classified as securities and regulated as such.
Coinbase’s Chief Legal Officer, Paul Grewal, expressed his approval of the court’s decision. “This is an important step for Coinbase and the wider crypto industry”, Grewal said. “The outcome could help clarify how securities laws should apply to digital assets”, he added.
Judge Katherine Polk Failla, who made the decision to approve the appeal, acknowledged that the case involves important legal questions. These include whether certain digital assets should be classified as securities, a question that has many different interpretations in US courts.
Failla agreed that the Court of Appeals should review the case because the legal issues involved could have broad implications for the future of cryptocurrency regulations.
A changing regulatory environment
Coinbase’s ongoing battle with the SEC comes at a time of significant change in the political landscape of the US. The cryptocurrency industry is watching closely as President-elect Donald Trump prepares to take office.
Many in the industry are hoping that the new administration will take a different approach to crypto regulations, especially under the leadership of the SEC.
Currently, SEC Chairman, Gary Gensler, has been very aggressive in his stance towards cryptocurrency exchanges like Coinbase. He has filed lawsuits accusing platforms of violating securities laws.
However, with the expected leadership change at the SEC, some believe the regulatory environment could shift. Paul Atkins, who is expected to lead the SEC under Trump, has been more open to a lighter regulatory touch for the crypto industry.
In fact, Coinbase CEO, Brian Armstrong, has called for an apology from the SEC for its actions against the cryptocurrency sector.
“The next SEC Chairman should apologise to the American people for the damage caused to the crypto industry”, Armstrong said. He believes that an apology would be a sign of a fresh start and could help rebuild trust between the crypto sector and regulators.
Beyond the SEC’s actions, Coinbase has also raised concerns about potential efforts by federal agencies to restrict banks from working with crypto businesses.
This has been referred to as “Operation Chokepoint 2.0”, and critics argue that it unfairly targets the crypto industry. Senator Cynthia Lummis has spoken out against these efforts, claiming that they are harming Wyoming’s growing digital asset industry.
As the legal and regulatory landscape shifts, many in the crypto world are pushing for clearer laws. Some members of Congress are already working on new legislation to establish clearer rules for digital assets, hoping to create a regulatory framework that encourages growth while protecting investors.
Coinbase’s legal journey
Coinbase’s legal battle with the SEC started in 2023 when the SEC sued the exchange, accusing it of operating as an unregistered securities exchange and broker. The SEC also raised concerns about Coinbase’s staking and wallet services.
While Judge Failla dismissed some of the claims, particularly those related to Coinbase’s wallet services, the rest of the case is still moving forward.
The most significant part of the lawsuit involves whether certain tokens on Coinbase’s platform should be considered securities.
If the court rules in favour of the SEC, it could force Coinbase and other crypto platforms to register with the SEC and follow strict securities regulations.
On the other hand, if Coinbase wins the appeal, it could provide much-needed clarity for the entire crypto industry and potentially ease regulatory pressures.
Judge Failla’s decision to allow an interlocutory appeal—an appeal before the case is fully resolved—is unusual, but it highlights the importance of the legal questions involved.
She acknowledged that the case raises fundamental questions about how the Howey Test should be applied to digital assets.
This test is used to determine whether an asset is a security, and its interpretation could significantly impact how digital assets are regulated.
The outcome of this appeal will not only affect Coinbase but could also have wider implications for the entire cryptocurrency market.
A ruling in Coinbase’s favour could provide the crypto industry with clearer guidelines on how it should operate within the US legal framework.
If the Second Circuit Court rules that an investment contract does not require a formal contract, it could reshape the regulatory treatment of digital assets across the country.
As the case moves forward, Coinbase remains optimistic about the potential outcome. The company sees the appeal as an opportunity to clarify important legal issues that could affect the entire industry.
While the appeal’s final decision is still some way off, it could have a lasting impact on how digital assets are treated under US law.
For now, the legal battle continues, with both Coinbase and the SEC preparing for the next stage.
