The U.S. Securities and Exchange Commission (SEC) has recently denied a petition from cryptocurrency exchange Coinbase, in which Coinbase requested the development of new rules specifically for digital asset securities. The SEC’s decision comes after a lengthy period of back-and-forth between Coinbase and the securities regulator, with Coinbase originally submitting the petition in July 2022.
In a response letter to Coinbase, the SEC stated that it believed the requested rulemaking was currently unwarranted and therefore denied the petition. Coinbase had argued that existing SEC rules were incomplete and unsuitable for digital asset securities operating on blockchain technology. However, the SEC disagreed with this assertion, stating that the application of existing securities statutes and regulations to crypto asset securities was workable.
The SEC’s denial of a specialized crypto framework aligns with SEC Chair Gary Gensler’s consistent view that most crypto assets should be subject to existing investor protection rules. Gensler has repeatedly emphasized the importance of applying long-established regulations to the crypto industry. The SEC’s decision reflects this perspective and suggests that the agency does not see a need for a new regulatory framework specifically for crypto asset securities.
The SEC also made it clear 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 has the discretion to determine the timing and priorities of its regulatory agenda, including any future rule changes. Instead, the SEC highlighted ongoing initiatives that may inform potential future changes, implying that it will consider these initiatives before determining if any rule modifications are necessary.
Before the SEC’s outright rejection of its rulemaking petition, Coinbase took legal action against the securities regulator. In April 2023, the exchange filed a lawsuit in an effort to compel the SEC to officially accept or reject the petition that was originally submitted in July 2022. With the SEC’s recent denial of the petition, Coinbase’s legal action has now been answered.
Overall, the SEC’s refusal to establish new rules specifically for digital asset securities highlights the agency’s belief that existing regulations are sufficient to govern the crypto industry. While Coinbase may have sought a more tailored regulatory framework, the SEC’s decision suggests that it has confidence in applying traditional securities laws to digital asset securities. This denial may have broader implications for the future of cryptocurrency regulation, as it indicates that the SEC does not consider a specialized framework necessary at this time. However, it remains to be seen how ongoing initiatives and potential future changes will shape the regulatory landscape for crypto asset securities in the long run.
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