Here is some Coinbase news which you have to attract your attention. Last month, a federal court gave cryptocurrency investors reason to rejoice. Another has now halted the party, and Coinbase Global investors are suffering as a result.
On Monday, Judge Jed Rakoff determined that the Securities and Exchange Commission may proceed with its case against Terraform Labs for allegedly misleading investors. Rakoff rejected an approach by Judge Analisa Torres in the same court that some investors thought suggested Coinbase (COIN) and other crypto-trading platforms might skirt securities regulation in most situations.
The verdict will almost certainly give new life to the crypto crackdown launched by SEC Chair Gary Gensler over the last year, and it might signal disaster for corporations like Coinbase, who are facing existential threats depending on the outcome of the court proceedings.
After this Coinbase news in Tuesday’s trade, Coinbase stock was down 5.8% to $92.86.
The essence of the debate is whether crypto tokens should be called securities under certain situations. Securities fall under Gensler’s purview, as does his rather robust attitude to crypto enforcement. The SEC sued Coinbase in June for allegedly functioning as an unregistered securities exchange. Still, the case may be dismissed if courts rule that most token transactions do not fulfil that description.
Torres concluded in mid-July in federal court in the Southern District of New York that a coin called XRP was not a security in and of itself. She stated that deals involving sales to institutional investors are subject to securities rules, although many secondary market transactions are not. Investors read the verdict to suggest that most Coinbase activities may be excluded, and the stock rose 20% the next day.
Rakoff’s decision in the same district further complicates matters. Rakoff cited Torres’ judgement in the Terraform case, writing, “this Court declines to distinguish these coins based on their manner of sale,” later adding, “rejects the approach recently adopted by another judge of this District in a similar case.”
Some analysts believe this has serious consequences for Coinbase. Investors read the previous ruling “as supportive of COIN’s defence in the lawsuit brought against it by the SEC,” said Berenberg analyst Mark Palmer in a research note on Tuesday, who has a “Hold” recommendation on the company. Palmer called Monday’s decision a “resounding rejection.”
There is a lengthy road ahead between the July verdicts and how they will affect Coinbase and its Coinbase news. The SEC can appeal the XRP verdict, but courts may rule that the agency must wait until that case is completed before challenging it, which could take years. Meanwhile, neither the XRP nor the Terraform judgements bind other courts.
The opposing verdicts do, however, tip the scales in crypto’s favour. For years, Gensler has claimed that securities regulations are straightforward and that the problem with crypto firms is that they refuse to follow them. However, within a month, federal courts in the same district reached opposed judgments about how the law relates to token transactions.
“The courts are not a venue for policy-making, and the opinion in the Terraform case further confirms that Congress needs to pass legislation that provides clear rules of the road for digital assets that protect consumers and innovation in the U.S.,” said Paul Grewal, Coinbase’s chief legal officer, in a statement.
To that aim, a House committee this week approved legislation attempting to clarify how authorities should oversee crypto assets. Though the plan has a decent chance of passing in the Republican-controlled House, it is unclear whether there is enough enthusiasm among Democrats in the Senate for it to become law.