The SEC's policy of maintaining deliberate ambivalence on what exactly constitutes a security in the crypto sphere just got cudgeled in court by the most influential business organization in the US, with the crypto exchange Coinbase appearing to benefit from this high-stakes endorsement.
For those who might be unaware, the SEC refuses to define the criteria that it uses to classify a particular cryptocurrency as a financial security. Instead, the apex regulator in the US continues to rely on an arbitrary "regulation by enforcement" policy that has significantly ramped up the regulatory uncertainty in the world's largest economy.
What's more, the SEC has often negated its own publicly stated stance on this issue. For instance, the SEC's Chair, Gary Gensler, is on record for stating that "everything else other than Bitcoin" was a security, thereby placing the vast majority of the crypto sphere under the SEC's jurisdiction. However, in a recent court document, the SEC admitted that it has yet to make a determination regarding the security status of Ethereum. In what further muddies the regulatory landscape, the CFTC has clearly stated that Ethereum is a commodity, thereby placing the world's second-largest crypto ecosystem within its jurisdiction.
To force the SEC's hand, Coinbase sued the apex financial regulator in the United States Court of Appeals for the Third Circuit back in April 2023. In its complaint, Coinbase argued that it had asked the SEC back in July 2022 to "propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods" but has yet to receive a response. Bear in mind that the SEC is mandated to provide such guidance when requested within a "reasonable" time frame.
1/ BREAKING: The U.S. Chamber of Commerce has just filed a brief in the @Coinbase v. SEC case, calling out the SEC for acting "unlawfully" in the digital asset space.
This is The U.S. Chamber of Commerce--not the Chamber of Digital Commerce.
This is a Big Deal.
Here's why...
— MetaLawMan (@MetaLawMan) May 11, 2023
This brings us to the crux of the matter. The US Chamber of Commerce just filed a brief with the Court of Appeals, slamming the SEC's stance on this issue. The brief opens with the following statement:
"As it stands today, nobody knows for certain which digital assets, if any, are "securities" under federal law. That is no small question. It has immense implications for every person involved in the $1 trillion digital-asset economy, and it is the threshold regulatory question from which all others flow. But remarkably, the Securities and Exchange Commission—despite proclaiming itself the primary regulator of digital assets—has refused to resolve this threshold question."
According to the Chamber of Commerce, this deliberate policy ambivalence is killing the innovation spirit in the US economy, destabilizing the regulatory environment around the crypto sphere, and violating the Fair Notice rights as well as those related to due process. As a coup de grâce of sorts, the Chamber notes:
"The SEC's actions are not just harmful policy; they are unlawful; and the consequences of the SEC's continued delay are severe for that reason too."
While this brief will undoubtedly strengthen the stance of Coinbase in the court, a final resolution is still far away. In early May, the Court of Appeals gave the SEC ten days to explain why it has continued to dither on the request by Coinbase to provide some much-needed regulatory clarity. It remains to be seen how the SEC would answer this crucial question.
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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