Judge considering dismissing SEC regulation? Citigroup continues to raise Coinbase target price
During the hearing, the American judge questioned the SEC's broad definition of securities. Although no ruling was made on the spot, the judge's attitude seemed to lean towards supporting Coinbase's motion to dismiss. After the hearing, Citigroup raised its target price for Coinbase from $90 to $151.
Is cryptocurrency really a security product? The long-lasting battle over cryptocurrency regulation in the United States is still ongoing. However, based on the latest developments, the scales of victory seem to be tipping towards the side of exchanges.
A federal judge expressed doubt on Wednesday about the claims made by the U.S. Securities and Exchange Commission (SEC), pointing out that supporting the SEC's claims could inadvertently expand the definition of securities to areas such as collectibles, which are not within the SEC's regulatory scope.
Judge questions SEC's overly broad definition of securities
On Wednesday, local time, U.S. District Judge Katherine Polk Failla presided over a hearing on Coinbase's request to dismiss the SEC's civil lawsuit.
The SEC sued Coinbase in June last year, alleging that it was an unregistered securities dealer. Coinbase filed a motion to dismiss (MTD) in August, arguing that the SEC did not have the statutory authority to regulate cryptocurrency exchanges.
During the five-hour hearing, Failla seemed unconvinced by the SEC's arguments. She said to the SEC's lawyer in court:
"I want to understand how your standard doesn't implicate the collectibles market or commodities. I'm concerned that your argument is too broad."
At the end of Wednesday's hearing, Failla did not make a ruling, but it is expected that a decision will be made in the coming months. If she allows the case to proceed in whole or in part, the trial may take place next year.
Coinbase: Trading coins is different from securities, it's like buying baseball cards or Beanie Babies
This case has significant implications, as the legal standoff between Coinbase and the SEC is a critical moment for cryptocurrency regulation and compliance. The outcome of this case could set a precedent and impact the regulatory approach to digital assets in the United States and even globally.
Moreover, the ruling in this case will greatly affect Coinbase's operations. Industry observers believe that if Coinbase is deemed a securities dealer, it will be forced to restructure multiple services such as trading, monitoring, and custody. The company may face significant operational and financial challenges, with potential losses of up to 30% of its revenue.
When suing major cryptocurrency exchanges such as Binance and Coinbase, the SEC cited the Supreme Court's 1946 ruling in SEC v. W. J. Howey Co., which provides a definition for investment contracts, a type of security product distinct from stocks and bonds.
The SEC believes that most cryptocurrencies meet the definition of investment contracts. This means that Coinbase cannot trade cryptocurrencies if it does not comply with the same rules as the New York Stock Exchange or Wall Street brokerages.
In response to the SEC's allegations, one of Coinbase's defense arguments is the "major questions doctrine," which requires limiting the issuance of regulations with significant economic and political implications by U.S. federal agencies without clear instructions from Congress. In Wednesday's hearing, a lawyer for Coinbase argued that Congress did not grant the SEC the authority to regulate cryptocurrencies, but the SEC took it upon themselves to do so. If the court accepts the SEC's claims in the Coinbase case, it would have a "legislative impact" and "affect the entire industry."
Furthermore, regarding the SEC's characterization of cryptocurrencies as investment contracts, Coinbase argued that cryptocurrencies do not come with dividend rights or other contractual commitments, and therefore fall outside the SEC's jurisdiction. Trading on secondary markets is simply transactions between individuals and does not involve the specific investment contracts associated with securities. Most cryptocurrencies are commodities, not securities, and investors may hope for their value to appreciate, similar to collecting baseball cards or Beanie Babies, but that alone does not make them securities.
After the hearing, Citigroup raised its target price for Coinbase from $90 to $151.
As of the time of writing, Coinbase is up about 1% in pre-market trading.
