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Coinbase in Legal Showdown: Are Solana, Polygon, Filecoin, and More Tokens Truly Securities?

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  • In a critical court session, Coinbase argued against the SEC’s accusation that it listed securities, challenging the regulator’s classification of its tokens.
  • The judge remains undecided on the case’s dismissal, while legal definitions and past court rulings become central to Coinbase’s defense strategy.

In the Legal Arena: Coinbase vs. SEC

New York District Judge Katherine Polk Failla interrogated Coinbase on the nature of tokens listed on its exchange amidst the SEC’s lawsuit accusing the company of illegal operations. The legal battle, which could dictate the future regulatory landscape for cryptocurrencies, saw Coinbase present a nuanced defense distinguishing between purchasing a company’s product and investing in the company itself.

Delineating Securities from Tokens

William Savitt, representing Coinbase, scrutinized the definition of securities, drawing a line between the tokens traded on Coinbase’s platform and traditional investment contracts. He emphasized that, while Coinbase does not dismiss the possibility of tokens being securities under certain circumstances, the SEC’s current allegations fail to meet the criteria of an investment contract.

The Bitcoin Ecosystem Debate

The conversation took a surprising turn when the SEC’s Patrick Costello argued that Bitcoin is not a security due to the absence of an underlying ecosystem. In contrast, Savitt countered that Bitcoin does indeed have an ecosystem, challenging the simplicity of the SEC’s argument and suggesting that the ecosystem presence does not inherently classify a cryptocurrency as a security.

Judicial Precedents and Interpretations

The discourse also revisited previous court decisions, including Judge Jed Rakoff’s ruling in favor of the SEC against Terraform Labs, and the complex Ripple case presided over by Judge Analisa Torres. Coinbase’s counsel acknowledged disagreements with aspects of Rakoff’s analysis but could reconcile with its emphasis on contractual agreements.

The Major Questions Doctrine Dilemma

Judge Failla expressed reluctance to apply the major questions doctrine, as requested by Coinbase to restrict the SEC’s authority. She cited the doctrine’s rarity in court findings and her own hesitance to expand its use without strong precedent.

Awaiting Judicial Deliberation

As the hearing concluded, Judge Failla indicated that her decision would not be immediate, suggesting further contemplation on the arguments presented. If she opts not to dismiss the case, it will advance to discovery and possibly summary judgment motions, with a trial potentially set for 2025 if unresolved.

In this high-stakes legal confrontation, the crypto community looks on as Coinbase stands its ground, defending the nature of its token offerings and challenging the SEC’s regulatory stance. The outcome of this case is likely to have lasting implications for the classification and regulation of cryptocurrencies in the United States.

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Ralf Klein is a computer engineer specializing in database technology, and as such, he was immediately fascinated by the possibilities of blockchain when he first heard about it, especially since this distributed, tamper-proof technology can be the foundation for much more than just cryptocurrencies. At ETHNews, he translates the articles of his English-speaking colleagues for the German readers. Business Email: info@ethnews.com Phone: +49 160 92211628