Coinbase may be poised to win its legal battle with federal regulators after just one hearing in court this week, according to legal experts familiar with the case.
On Friday, Bloomberg senior litigation analyst Elliot Z. Stein said the cryptocurrency exchange had a 70% chance of winning its case to have the U.S. Securities and Exchange Commission dismiss all lawsuits filed against Coinbase after hearing Coinbase’s oral arguments on Wednesday. He posted it on Twitter. (secretary).
“I think Coinbase will win this motion.” Stein wrote in research notes Posted on Twitter (aka X).
The company’s motion, filed last June, claimed that none of the tokens mentioned in the lawsuit filed by the SEC earlier that month met the definition of an investment contract. Furthermore, they cannot be considered securities, nor can Coinbase be called an unregistered stock exchange.
Stein explains how Judge Katherine Polk Failla Wanted The SEC provides a definition of “investment agreement” that ultimately does not include innocuous collectibles like Beanie Babies.
By contrast, he found Coinbase’s definition, which requires cryptocurrency investors to buy a stake in a “business” rather than simply an ecosystem, to be much more compelling. Under this standard, both cryptocurrency sales and staking-as-a-service businesses on the Coinbase platform would be outside the scope of the SEC.
Stein added, “Even if the case survives, it will likely go all the way to the Supreme Court, which I think will narrow Howey’s scope.”
The Howey test is a legal standard established in the 1940s for identifying investment contracts.
The test requires that an asset meet four criteria to be considered: 1) Investment of money; 2) in a joint enterprise; 3) with the expectation of profit; 4) Building on the efforts of others.
“Under Howey, the SEC can regulate collections. They just decided not to,” said Brian L. Frye, a law professor at the University of Kentucky. decryption.
For example, a work of art may be purchased with the expectation of profit based on the producer’s efforts to increase the value of the associated brand. This theoretically checks all the boxes of the Howey test, making the sale of art a securities transaction.
Frye agreed that the district court would likely side with Coinbase on the issue, but said it may have a hard time establishing why. He also predicted the SEC would take the case to circuit court and appeal.
“Coinbase believes the SEC should provide a theory of what it can and cannot regulate. And that theory can’t just consist of ‘the SEC can’t regulate collectibles,’” he said.
Joe Carlasare, a partner at the Amundsen Davis law firm, was even more pessimistic about Coinbase’s chances of a perfect outcome.
“I think the odds of a complete dismissal of all claims are less than 30 percent,” he said. decryption. Coinbase’s arguments were compelling, and the exchange is likely to prevail in some areas, but dismissing all claims in a motion to dismiss simply defies the odds.
“On a motion to dismiss, the complaint must be liberally construed in favor of the plaintiff, and all facts alleged in the complaint must be considered fact,” he said.
“Coinbase must effectively prove that all of the SEC’s claims are legally insufficient,” Carlasare added. “That’s a big burden.”
The SEC has already lost two major cryptocurrency showdowns last year, including prosecutors against Ripple Labs and defendants against Grayscale. The latter ruling opened the door to the approval of spot Bitcoin ETFs in the United States last week.
Editor: Andrew Hayward
