Written by Hazel J. Greene, Senior Analyst

The legal battle between Coinbase, a leading cryptocurrency exchange, and the United States Securities and Exchange Commission (SEC) has recently witnessed an intriguing twist. During a pre-motion conference on July 13, Judge Katherine Polk Failla made comments that appear to align with Coinbase’s defense, a development that has caught the attention of the cryptocurrency community.

The disclosure of Judge Failla’s sentiments during the conference was shared on Twitter by MetaLawMan, a lawyer who believes that her comments favor Coinbase on a critical argument. In their lawsuit filed in New York, the SEC accuses Coinbase of operating as an unregistered broker-dealer, clearinghouse, and exchange for crypto asset securities without regulatory oversight. However, the judge made reference to Coinbase’s assertion that their actions were justified, as they were consistent with what the SEC allowed during the IPO registration issuance (S-1).

According to the transcript, Judge Failla stated, “It’s not crazy in the Failla parlance for Coinbase to think that what they were doing was OK because it was exactly what you let them do when they issued the S-1 [IPO registration].” This observation, as pointed out by the lawyer, suggests that the SEC’s legal team might face challenges in defending their stance.

Coinbase had employed the Major Questions Doctrine in its motion to dismiss the case, a move that the judge described as a “heavily footnoted preliminary statement.” In response, the SEC is now seeking to strike the motion to dismiss.

The implications of this ongoing lawsuit are significant, as its outcome will likely have far-reaching consequences for the entire cryptocurrency market, including the value of Bitcoin and even Coinbase’s own share price. Interestingly, Steven Peikin, Coinbase’s counsel, expressed support for Judge Failla’s skepticism towards the SEC’s argument that approval of Coinbase’s IPO prospectus (S-1 form) does not imply consent to their business model.

This support is based on the fact that Coinbase went through an extensive review by the SEC in 2021, securing approval to sell its shares after the regulator carefully scrutinized every aspect of their filing to ensure compliance with accounting standards and federal securities laws. The prior endorsement provided by the SEC raises questions about its authority to initiate enforcement actions against Coinbase.

Should Coinbase emerge victorious in this legal battle, it could establish an essential precedent for other cryptocurrency exchanges operating in the United States. Notably, Binance, another prominent cryptocurrency exchange, and its CEO, Changpeng Zhao, are preparing to confront the SEC after being sued for similar alleged “violations” earlier in June.

As the case unfolds, it demands close attention due to the potential impact it may have on the future of cryptocurrencies and the regulatory landscape governing them. Ultimately, the judge’s ruling will carry significant weight, shaping the path forward for the crypto industry and influencing the actions of market participants.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.