Coinbase asks US appeals court to clarify crypto regulation

Coinbase, the largest cryptocurrency exchange in the United States, has filed a petition with the U.S. Court of Appeals for the Second Circuit.

The company is asking the court to rule that cryptocurrency transactions conducted on its platform are not subject to federal securities laws.

This legal action arises from an ongoing dispute with the Securities and Exchange Commissionwhich sued Coinbase in 2023 for allegedly operating as an unregistered securities exchange, according to at Bloomberg.

THE central question in this case, the question is whether digital tokens are considered securities under US law. Securities, such as stocks and bonds, are regulated by the SEC to ensure investor protection.

If crypto tokens are classified as securities, platforms like Coinbase would be required to register with the SEC, which would impose significant compliance obligations and restrictions.

Howey test

The key legal issue revolves around the “Howey test”, a frame the Supreme Court established in 1946 to decide whether a transaction qualifies as an “investment contract.”

Coinbase claims that crypto transactions on its platform do not meet the criteria outlined in the Howey test. The company argues that these transactions involve direct sales of digital assets between anonymous buyers and sellers, without any promise of shared profits or joint enterprise.

Recently, a federal judge in New York allowed Coinbase to appeal this issue directly to a higher court, suspending the SEC’s lawsuit in the meantime.

The company says solve this question is crucial for the cryptocurrency sector, which has been subject to increased scrutiny and enforcement under the Biden administration.

Meanwhile, the SEC’s leadership has changed under the Trump administration’s acting chairman, Mark Uyeda.

The agency announcement the formation of a task force focused on creating clearer regulatory guidelines for the crypto industry, signaling a potential shift from the enforcement-heavy tactics seen in previous years.