The U.S. Securities and Exchange Commission (SEC) has denied a petition from Coinbase, the popular cryptocurrency exchange, which requested the development of new rules for digital asset securities. After a lengthy back-and-forth between Coinbase and the securities regulator lasting nearly 18 months, the SEC concluded that the requested rulemaking is currently unwarranted and denied the petition.
Coinbase initially petitioned the SEC in July 2022, asking the agency to create a new regulatory framework for crypto asset securities through its formal rulemaking process. The exchange argued that existing SEC rules were incomplete and unsuitable for digital asset securities operating on blockchain technology. However, in its denial letter, the SEC disagreed with the petition’s assertion, stating that the application of existing securities statutes and regulations to crypto asset securities is workable.
The rejection of a specialized crypto framework aligns with SEC Chair Gary Gensler’s consistent view that most crypto assets fall under long-established investor protection rules. Gensler has emphasized this viewpoint multiple times. The SEC stated that it currently has no plans to undertake the discretionary rulemaking requested by Coinbase to create a new regulatory framework for crypto asset securities. The agency cited other ongoing SEC initiatives that may inform future rule changes, highlighting its authority to determine the timing and priorities of its regulatory agenda.
Before the SEC’s outright rejection of its rulemaking petition, Coinbase took legal action against the securities regulator in an attempt to force a response. In April 2023, the exchange filed a lawsuit to compel the SEC to officially accept or reject a petition originally submitted in July 2022. Now, with the SEC’s denial of the petition, Coinbase’s legal action has been answered.
The SEC’s decision to deny Coinbase’s request for new rules on digital asset securities will have significant implications for the cryptocurrency industry. Without a specialized regulatory framework, crypto asset securities will continue to be subject to existing securities statutes and regulations. This decision reaffirms the SEC’s commitment to applying established investor protection rules to the rapidly evolving world of cryptocurrencies.
While the SEC has indicated that it currently has no plans for discretionary rulemaking, it acknowledges ongoing initiatives that may influence future regulations. The crypto industry will have to closely monitor these developments to understand the potential regulatory changes that lie ahead.
In the face of Coinbase’s request for new rules on digital asset securities, the SEC has denied the petition, stating that the application of existing securities statutes and regulations is workable. Coinbase’s legal action has now been answered, and the denial highlights the SEC’s stance on investor protection rules applying to most crypto assets. The decision will shape the future of the cryptocurrency industry, which will need to navigate existing regulations until any potential changes are made.
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