- Coinbase refines its subpoena to target only Gary Gensler’s communications during his tenure as SEC Chair
- The change reflects a more favorable political environment for the crypto sector in the U.S
- Coinbase’s move comes as the exchange anticipates potential changes in the regulatory landscape following the upcoming elections
There’s been a change of strategy for Coinbase in its lawsuit against the SEC and Gary Gensler.
What is the SEC? The Securities and Exchange Commission (SEC) is the U.S. government oversight agency responsible for regulating the securities markets and protecting investors.
It looks like the political situation in the US is becoming somewhat more favorable for the crypto sector, which might explain why the exchange has slowed down a bit.
The Lawsuit Against the SEC
Gary Gensler, the current chairman of the SEC, started criticizing crypto exchanges early last year. He said that many cryptocurrencies on sale there should be treated as unregistered securities and delisted.
In June 2023, it was revealed that the SEC had also initiated proceedings against Coinbase, the largest US crypto exchange and Nasdaq-listed company.
However, the exchange wasn’t intimidated and took action in response.
After being sued by the SEC, Coinbase filed a counterclaim against the agency. Coinbase, in fact, accused the SEC of failing to provide clear guidance on how to act, even in the face of their explicit requests.
The Problem
There are two main issues here.
One big issue with exchanges like Coinbase is the risk that they could be used to buy and sell unregistered securities, as the SEC has claimed.
The SEC’s issue is that it couldn’t give the exchanges instructions on how to act. It just denounced them, effectively deferring any decision to a court.
It’s important to remember that there is still no crypto regulation in the US. Applying traditional market rules to the new and innovative crypto market is not easy.
The main question is whether some cryptocurrencies or tokens should be considered security, and which ones.
It’s down to the courts to decide whether a cryptocurrency or token is a security.
XRP and Ethereum
It’s pretty much accepted now that Bitcoin is a commodity, not a security. It looks like even the SEC and Gary Gensler are on the same page, so there’s no issue as far as BTC is concerned.
When it comes to XRP and Ethereum, the courts have already made a decision.
The first ruling was about XRP, which the court decided wasn’t a security when traded on the secondary market (exchanges). The courts are still looking at whether it should be considered a security when it’s sold directly by the creator (Ripple) on the primary market.
Ethereum has been ruled not to be considered a security. The only question is whether the potential staking service offered by third parties (also known as staking-as-a-service) is an investment contract. No other altcoins have made a ruling on this yet.
Coinbase’s Slowdown
Things have changed since May, though.
As it turns out, the SEC gave the green light to ETH spot issuance in May, basically saying that it doesn’t see ETH as an unregistered security.
It seems like this change might be the result of a new political strategy by the Democrats since they don’t want to lose the vote of cryptocurrency enthusiasts in this election year.
For years, the Democrats have been the main obstacle to crypto regulation in the US, more so than the Republicans. The EU, on the other hand, approved one last year, and it came into force this year.
Given all this, Coinbase changed tactics against the SEC and Gary Gensler. It demanded that Gensler’s private communications be obtained only while he was chairman of the SEC.
Gary Gensler’s Communications
Coinbase says that Gary Gensler, the current chairman of the SEC, had previously been pretty positive about Bitcoin and Ethereum. But they think his views might have changed after he was appointed by Chairman Joe Biden in 2021.
Coinbase thinks that Gensler initially supported cryptocurrencies, as shown by some videos, but changed his mind once he was in charge of the SEC.
Coinbase is looking at his private messages to see if it can confirm this change in perspective, but it might not find anything.
Coinbase’s Defeat?
The thing is, Judge Katherine Polk Failla, who is overseeing the case, isn’t on board with the exchange’s request for access to all of Gensler’s private communications.
It seems like a smart move for Coinbase to back off for now. After all, if Donald Trump wins in November, Gensler will probably be replaced.
On top of that, Trump’s running mate is also into bitcoin. So it’s pretty likely that the next administration, if Trump wins, will be on board with cryptocurrency.
This doesn’t look like a loss for Coinbase, but more like a shift in context where things could even look promising for the exchange.
