SEC’s expected move to dismiss Coinbase case signals agency ‘ending the attack on the crypto industry’

The makeover of the U.S. Securities and Exchange Commission appears to be well underway following news that the agency plans to dismiss its years-long case against Coinbase. The crypto exchange announced on Friday that the SEC would be dropping that case, and some say that the agency is working to unravel some of its past practices under former SEC Chair Gary Gensler."This is a clear signal to the market that the Commission is restoring fairness and ending the attack on the crypto industry and blockchain technology," said Teresa Goody Guillén, a partner at BakerHostetler law firm and former SEC attorney, in an email.The SEC's case against Coinbase has been going on since 2023, when the agency alleged that the exchange was operating as an unregistered exchange, broker and clearing agency. Coinbase then filed an appeal in April, claiming substantial grounds for differences of opinion and arguing that there were vast differences in opinion on how laws apply to crypto. Later, the judge granted Coinbase's appeal, which was viewed as a rare move.ImplicationsThe agency also named several tokens as securities in the lawsuit against Coinbase, including SOL, ADA, MATIC, FIL, SAND, AXS, NEAR and DASH. The SEC's dismissal of the case doesn't mean that the agency is taking a stance on classifying certain assets or what the agency's "regulatory regime" will look like long term, Goody Guillén said.Others agreed. "I don't think that we can take this as an indication of the SEC's views either more generally or as it relates to any specific token," said Rebecca Rettig, chief legal officer at Jito Labs, in an email. "It does indicate that the SEC understands that the 'regulation by enforcement' approach was not working; litigation is typically very inefficient — very lengthy and unpredictable — and thus was not protecting consumers or allowing businesses to function well or prosper in the U.S."Though there is not yet clarity on whether certain cryptocurrencies are securities or not, there is a hope that the tokens listed on Coinbase are not, said Cathy Yoon, general counsel at the Wormhole Foundation. "It will be interesting to see if Kraken and Binance get the same treatment or if there will be ways to distinguish those actions from the one with CB," Yoon said. Yoon also noted that the claims had been dismissed without prejudice, meaning the SEC can't bring the same claims against Coinbase again. A switch-upThe SEC's move comes after former Chair Gary Gensler's leave in January following the inauguration of pro-crypto President Trump. Under the Biden administration, Gensler was skeptical of crypto, calling on crypto firms to register with the agency and saying that most cryptocurrencies were securities. Over the past several weeks, the SEC's Acting Chair, Mark Uyeda, has created a crypto task force that Commissioner Hester Peirce will lead. That task force plans a rewrite of sorts on how the agency regulates crypto. "With that new leadership in place, and with it an opportunity to reset how crypto is regulated in the U.S., we set about a conversation with our counterparts at the SEC," said Coinbase Chief Legal Officer Paul Grewal in an interview with The Block. When Gensler was chair, other crypto firms and exchanges faced registration charges, including those against Kraken, Bittrex and Binance.Grewal said he hoped that a drop in the exchange's lawsuit would serve as a template "for the SEC to resolve its other cases" against other crypto firms that do not involve allegations of fraud and misconduct. Grewal also said he hoped there were lessons learned."What did he [Gary Gensler] accomplish as we sit here today? The answer is pretty clear — nothing," Grewal said in an interview with The Block. "So I hope that those lessons will be learned on a forward-going basis."Meet-ups Grewal said Coinbase met with the SEC's enforcement division over the past several weeks and remained "steadfast" in not admitting or setting and argued that the exchange had done nothing wrong. "To the SEC's credit, the new SEC's credit, they ultimately understood that, listened to us and agreed to drop the case without conditions," he said.Next, the full commission will take a vote on Thursday to formally approve ending the case, Grewal said. Acting Chair Uyeda and Commissioner Peirce are set to support the move, but it's unclear how Commissioner Caroline Crenshaw will vote. Crenshaw has taken a more critical stance toward crypto leading some in the crypto industry to call for Crenshaw's removal, citing her dissent after the approval of spot Bitcoin exchange-traded products earlier this year. In her statement, Crenshaw warned of fraud, manipulation, and the potential for investors to believe falsely that they had protections."I would hope that Commissioner Crenshaw would similarly see the light, it's never too late to come out of the darkness," he said. "But regardless of her vote, with the support of the chair and Commissioner Peirce, this will be approved."Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. 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