Cryptocurrency is decentralized — which means that it’s not controlled by any authority, such as a government or bank. Then, who regulates crypto? It’s a million-dollar question no one knows the answer to, but the U.S. legal system wants to figure it out.
On Wednesday, a judge ruled that the SEC can pursue its lawsuit against crypto exchange Coinbase for engaging in unregistered securities sales.
U.S. District Court Judge Katherine Polk Failla for the Southern District of New York wrote in her ruling, “The ‘crypto’ nomenclature may be of recent vintage, but the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years.”
The court rejected Coinbase’s request to dismiss the SEC’s complaint.
A big win for the SEC
The SEC has consistently pushed crypto companies to comply with federal securities laws. Chair Gary Gensler, who once taught a digital asset course at MIT, wants crypto to become a part of the agency’s regulatory sphere. The latest ruling could be the SEC’s first victory in its fight against cryptocurrency compliance since it is also considering classifying Ether as a security.
What does it mean for the crypto industry?
Coinbase will continue fighting the SEC in court, which will take time. In the interim, the financial watchdog may crack down on other cryptocurrencies and crypto firms that don’t comply with the law.
It is widely believed that federal law is not sufficient to regulate cryptocurrencies in general, due to the way they differ from stocks. This latest ruling may pave the way for better regulation of cryptocurrencies in the country.
Meanwhile, Coinbase’s shares fell 2.5% Wednesday after the news. At the time of writing, the price was hovering around $262.