Dive Brief:

• Cryptocurrency exchange Coinbase has called on a federal appeals court to require the Securities and Exchange Commission to establish new rules governing digital assets.
• Coinbase lawyer Eugene Scalia on Monday told judges with the U.S. Court of Appeals for the 3rd Circuit that the SEC hasn’t explained its reasoning for denying Coinbase’s request for rules that would provide clarity on determining when digital assets are securities, Reuters reported. The company wants the court to overturn the agency’s denial.
• The agency, which largely views digital assets as securities, has taken legal action against a number of crypto industry companies. Scalia charged the agency with engaging in “extraordinarily oppressive governmental behavior” by issuing enforcement action against companies while not offering a way for them to register with the agency, Bloomberg reported.

Dive Insight:

Monday’s arguments are the latest development in the contentious back-and-forth between the regulatory agency and the company. The SEC has said it sees most crypto tokens as securities, therefore falling under its jurisdiction, while the industry says existing securities laws don’t apply to cryptocurrencies. 

Coinbase filed a petition for rulemaking in 2022, seeking clarity around which crypto assets are securities and how they ought to be regulated. 

The company then sued the SEC in April 2023, to prod the agency into responding to its petition. The SEC denied the company’s petition last December, disagreeing that the application of existing securities statutes and regulations to crypto assets is “unworkable.” 

Also, in June 2023, the SEC sued Coinbase, charging it with operating an unregistered national securities exchange, broker and clearing agency, and also for failing to register the offer and sale of its staking-as-a-service program. A judge said in March that the case can move forward.

Coinbase has long accused the SEC of regulation by enforcement. Scalia told the court Monday that the SEC’s fickle approach has made it impossible for the company to comply with laws and regulations, according to Reuters.

SEC lawyer Ezekiel Hill, meanwhile, told the court a new rule isn’t needed for the crypto industry, since existing regulations are sufficient.

“If Coinbase wants to arrange its business in a way that does not comply with the existing regulatory framework, that does not establish a right to have the framework adapted to meet their business,” Hill said, according to the wire service.

In response, judges acknowledged the SEC doesn’t have to justify its denials, but they also prodded Hill on the agency’s stance that specifics around crypto assets aren’t a priority, Axios reported. Judges didn’t issue a ruling immediately following arguments Monday.