Bloomberg’s senior litigation analyst, Elliott Stein, has expressed confidence in cryptocurrency exchange Coinbase’s chances of success in its ongoing lawsuit against the United States Securities and Exchange Commission (SEC).
Stein has estimated a 70% probability that Coinbase will secure a complete dismissal of the lawsuit.
In a recent post on Jan. 19, shared on a platform formerly known as Twitter, Stein initially believed that Coinbase would likely be able to challenge certain SEC claims but might struggle with allegations related to its staking rewards program and overall operational structure.
However, after a five-hour hearing, his perspective shifted dramatically:
“When I entered the SEC v. Coinbase hearing, I thought that COIN would probably succeed in dismissing SEC’s primary claims regarding trading, but perhaps not those related to staking and broker claims. After leaving the hearing,
I was convinced that COIN would achieve a full dismissal.”
The SEC’s accusations revolve around Coinbase’s practice of staking customer assets, earning rewards on their behalf, and returning them.
The SEC argues that this constitutes offering and selling investment contracts, subjecting Coinbase to SEC regulations.
Additionally, the SEC alleges that Coinbase was functioning as an unregistered broker, a claim vehemently denied by the exchange, which argued that there is no straightforward process for crypto exchanges to obtain licenses.
READ MORE: U.S. Regulators Investigate Debiex Exchange for Alleged Romance-Driven Crypto Swindle
Stein highlighted a pivotal moment when Coinbase provided a more precise definition of an “investment contract” than the SEC:
“I found Coinbase’s definition more convincing, requiring an investment in a business rather than merely an ecosystem, accompanied by an enforceable obligation.”
Stein also drew parallels to the SEC vs. Ripple case, where Ripple achieved a partial victory in July 2023.
The judge ruled that XRP is not considered a security when it comes to retail sales on cryptocurrency exchanges. Stein suggested that this ruling could have a ripple effect on Coinbase’s lawsuit:
“As the Ripple ruling in July suggested, digital asset sales on public exchanges do not neatly align with the Howey test for determining investment contracts.”
On Jan. 17, U.S. District Judge Katherine Polk Failla heard arguments from both the SEC and Coinbase during a lengthy five-hour session.
Notably, Judge Failla questioned SEC attorneys about why a digital token issuance would satisfy the Howey test, implying that the case’s scope might be too broad.
The SEC initiated the lawsuit against Coinbase on June 6, 2023, alleging that the exchange had violated federal securities laws by listing 13 tokens as securities, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL),
The Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), Near (NEAR), Voyager (VGX), Dash (DASH), and Nexo (NEXO).
Discover the Crypto Intelligence Blockchain Council
