U.S. State Officials Support SEC in their Case Against Coinbase

Coinbase, a big company that deals with cryptocurrency, hits a new problem on Tuesday in its legal battle about crypto status in the U.S. Now, U.S. state authorities and experts in law are supporting federal securities regulators, like the Securities and Exchange Commission (SEC), in saying that Coinbase was doing something illegal by running an exchange without proper registration. 

Coinbase is fighting with the SEC, which has been seen as very important for the future of cryptocurrency. Some people in the crypto industry accuse the SEC of trying to regulate them without clear rules from the U.S. Congress.

Now, new legal documents called amicus briefs are arguing that cryptocurrency is not very important or special. They say that the SEC can manage digital assets with the laws that already exist. 

Even though Coinbase is arguing that the SEC is using too much power, the North American Securities Administrators Association (NASAA) says the SEC is doing things right. NASAA, which has members from all U.S. states that regulate securities, made a statement that digital assets, like cryptocurrency, should not get special treatment. 

“There is no practical use for most digital assets, only speculation,” said the NASAA's filing. They also mentioned that even though crypto gets a lot of attention because it is often talked about in the media and by regulators, it is not that big or important in the U.S. economy.

In another brief, two academic lawyers argued that Coinbase is wrong to use a certain legal doctrine (a principle in law). They say that this case is about the SEC enforcing rules on one company (Coinbase), not about making new rules.

The lawyers also mentioned a recent Supreme Court decision, but said using it for crypto would be “absurd.” They believe it would create a different definition of securities in cases brought by different kinds of groups.

In support of these government-oriented filings, the New Finance Institute, a company that runs two blogs on finance, argued that Congress wanted to protect investors in a wide way, even more than just in transactions that raise capital. 

“The buying of crypto tokens should not be seen as investments because they don’t generate cash flow, something needed for a true investment,” said a filing by the NFI. However, they also stated that such purchases are still under investment contracts because buyers aren’t fully informed that they are not making investments.

Earlier in the year, the SEC went against several crypto exchanges, including Coinbase, saying that coins for blockchains, like Solana and Cardano, were like regular financial tools. 

This was accompanied by actions from states like Alabama and California. Coinbase has tried to get the federal case dismissed, arguing that crypto is not within the SEC’s control.