The SEC on Dec. 15 denied cryptocurrency exchange Coinbase Global's petition for the agency to issue rules governing digital assets, with Chairman Gary Gensler reiterating his position that no further regulation is needed to oversee the crypto market."
The existing securities regime appropriately governs crypto asset securities," Gensler said in a Dec. 15 statement. "I agree with the commission's decision to deny the petition."
In July 2022, Coinbase filed a Petition for Rulemaking, requesting that the SEC "propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities."
Coinbase then filed a lawsuit against the SEC in late April to compel the agency's response.
In his Dec. 15 statement, Gensler said the SEC is denying Coinbase's petition because there are already laws and regulations in place that apply to the crypto market, the SEC is working on various rules that pertain to digital assets, and the commission must maintain discretion with respect to its rule-making priorities.
As he has done before, Gensler referenced the Howey Test, which the SEC uses for determining which transactions qualify as "investment contracts," as a way to identify digital securities. He also pointed to the Supreme Court case Reves vs. Ernst & Young, which found that "Congress's purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called," according to Gensler's statement.
"Thus, to the extent that crypto assets are offered and sold in the form of an investment contract, and to the extent that entities intermediate transactions in crypto asset securities, the federal securities laws apply," Gensler said.
However, those in the digital asset industry and several lawmakers on Capitol Hill have said figuring out how existing laws apply to the industry is not an easy task and have repeatedly asked for more clarity. In its petition, Coinbase said the U.S. lacks "a functioning market in digital asset securities due to the lack of a clear and workable regulatory regime."
Republican Commissioners Hester M. Peirce and Mark T. Uyeda released their own statement Dec. 15 expressing their disagreement with the SEC's decision.
"In our view, the petition raises issues presented by new technologies and other innovations, and addressing these important issues is a core part of being a responsible regulator," the commissioners said.
They also said exploring such issues should include public feedback through avenues like concept releases, public roundtables, and requests for comment.
Gensler, on the other hand, reiterated his view that the crypto industry is rife with fraud and noncompliance.
"While the crypto market experiences outsize fraud, abuse and noncompliance relative to its size, it nevertheless is a small portion of the bigger-than-$110 trillion capital markets," Gensler said in his statement. "It is important that the commission maintain discretion to direct focus to whichever parts of the capital markets need updated regulation."
In a thread on X, the platform formerly known as Twitter, Paul Grewal, Coinbase's chief legal officer, signaled that the company plans to take legal action against the SEC again.
"With appreciation for the Third Circuit, later today we'll again seek its help by challenging the SEC's abdication of its duty," Grewal wrote, referencing Coinbase's April lawsuit against the SEC, which asked the 3rd U.S. Circuit Court of Appeals, Philadelphia, to compel the agency's decision on the petition.
Grewal also thanked Commissioners Peirce and Uyeda for their dissent and "(call) for real dialogue."
"We should be working together to create laws and rules that will benefit consumers and U.S. innovation, not defending lawsuits based on legal positions that change month after month," Grewal added.
