The story about the so-called Wells Notice that the exchange received from the regulator turned out to be silly. Coinbase said it had previously asked SEC officials for an explanation as to which digital assets it considers to be securities. However, instead of an adequate response, Coinbase received a hint of legal action.

The cryptocurrency industry in the US really needs certainty, because it doesn’t even smell like it there. As an example of this, we can mention the situation with cryptocurrency exchange Kraken, which was forced to close its own staking platform for Americans and on top of that paid a $30 million fine. Prior to that, however, it had been operating successfully and had not raised any questions from the regulator.


The reason for what is happening is that the SEC saw indications of securities in the steaming platform, as the latter promises to make a certain profit. However, it is important to note here that such conclusions are made in the light of securities regulation legislation. Cryptocurrencies are a much newer asset class, though, and it is a questionable idea to try to regulate this area with outdated regulations.


Using outdated laws to regulate cryptocurrencies is creating problems for cryptocurrency classification – and that includes Commission chairman Gary Gensler. He attended a hearing before the House Financial Services Committee last week, during which Gary responded to questions and criticism from congressmen. It appeared that Gensler was unable to clearly state whether Etherium is considered a security or a commodity. And that best describes the current state of the cryptocurrency industry in the US.

Coinbase management wants to change this situation. On the one hand, they are preparing to launch an exchange from another jurisdiction and are even allowing the company to relocate. On the other hand, the company is trying to assert its rights and make the regulators work.

Why is Coinbase suing the SEC?

Coinbase representatives filed the lawsuit on Monday evening. In the case, the company wants to force the US Securities and Exchange Commission to respond to its request from last year, using a federal court to do so.


In July 2022, Coinbase employees sent a so-called "petition for rulemaking" to the SEC. The document asked the regulator to develop and approve rules for securities in the form of digital assets. That is, the company suggested that the regulator should stop governing the cryptocurrency industry with a legal framework for securities that was established in the 1930s, and instead create a new and relevant framework for dealing with the up-and-coming industry.

The paper also contained 50 specific questions whose answers would help bring "clarity and certainty to the regulatory treatment of securities as represented by digital assets". Some of these related to the Securities Commission's methodology for defining certain tokens as securities, while others related to crypto-assets being held and traded on exchanges that operate in accordance with the regulator's regulations.


In other words, the company simply wants to get the regulator to publish clear rules that would allow them to conduct their business and not be afraid of sudden fines and lawsuits. Naturally, this would boost the digital asset industry and encourage an influx of entrepreneurs along with investors.

Under the Administrative Procedures Act, Commission representatives are required to review Coinbase’s petition within a “reasonable period of time”. However, since the filing – which is a full nine months – the regulator has not taken the time to respond. Therefore, the crypto-exchange’s employees now want to get one through the courts.

According to Decrypt’s sources, the petition found room for the following quote.

There is currently no working securities market in the US in the form of digital assets due to the lack of a clear and up-to-date regulatory regime. New rules that would make it easier to use this asset category would also allow for a more efficient and effective allocation of capital in the financial markets.


Recall that the position of the Commission and its chairman Gary Gensler is that the US supposedly already has a regulatory framework for the regulation of digital assets - these are securities laws. That is, Gensler is not confused by the fact that such documents were created in the absence of the Internet, smartphones and cryptocurrencies in general. According to him, almost all cryptocurrencies are securities, so they need to be regulated accordingly.

Amusingly, during the recent hearings, he failed to say the same thing to the congressmen. Although he was asked to do so.


According to experts, in the present circumstances, the regulator is obliged to respond to the said petition. The most likely response is to claim that the cryptocurrency market does not need a separate legislative framework, as it can supposedly be regulated under existing securities laws.

However, if the Commission says it will not create new regulation, then Coinbase could challenge such a decision in court.

Coinbase General Counsel Paul Grewal notes that he and his colleagues are “not asking the court to tell SEC staff how to respond.” Instead, they simply want to compel the regulator to respond, which it is already required to do under the law. Here is the relevant quote.

It’s important that the SEC, along with any other regulator that receives a petition for rulemaking, respond to it as soon as a decision is made – especially if the response is negative.


That is, a Coinbase spokesperson emphasises that the regulator is obliged to respond to the petition. Otherwise it could be seen as breaking the law.



We believe that the current situation will have a positive impact on the regulation of cryptocurrencies in the long term. It is obvious that the SEC officials do not want to perform their own duties properly, so they need the help of the court here. We would like to believe that the latter's decision will not be long in coming, well, the SEC staff will eventually take up the case and develop adequate cryptocurrency regulation rules. Otherwise, Gary Gensler will probably face an indefinite leave of absence.


Look for more interesting things in our cryptochat of ex-rich people. We’ll be there waiting for the new bullrun to arrive.