SEC Moves to Dismiss Coinbase Lawsuit, Shifting Crypto Regulation Strategy

WASHINGTON, Feb. 27 — The U.S. Securities and Exchange Commission (SEC) filed Thursday to dismiss its lawsuit against Coinbase, the country’s largest cryptocurrency exchange, marking a significant shift in the agency’s regulatory approach under the new Republican administration.

The SEC originally sued Coinbase in 2023, claiming the exchange violated securities laws by facilitating trading of at least 13 crypto tokens that the agency stated should have been registered as securities. The lawsuit also targeted Coinbase’s staking program, where the exchange pools customer assets to validate transactions on blockchain networks, earning commissions and rewards for users.

In a blog post released last week, Coinbase expressed optimism regarding the SEC’s potential decision to withdraw the lawsuit. Paul Grewal, Coinbase’s Chief Legal Officer, stated, “The war against crypto, at least as it applies to Coinbase, is over.” He added that SEC staff had “agreed in principle” to dismiss the case, pending a final decision by the commission.

The SEC’s move to reconsider past legal actions against cryptocurrency firms follows the appointment of a new chair, known for a more lenient stance towards the industry. Under the previous leadership, the agency pursued aggressive enforcement actions against several crypto platforms, including a separate lawsuit against Binance in 2023.

Legal experts have noted that the SEC’s dismissal of pending lawsuits may be unprecedented, with many anticipating that the agency may now focus on seeking settlements rather than continuing litigation. “There are other matters under investigation that also more than likely are being reviewed,” said Richard Levin, chair of the fintech practice at Nelson Mullins Riley & Scarborough law firm.

Republican officials within the SEC have initiated a comprehensive overhaul of the agency’s crypto policies, which includes establishing a dedicated crypto task force. This task force has produced significant policy changes, including rescinding previous accounting guidance related to crypto activities.

Industry advocacy groups, however, have expressed concern regarding the SEC’s shift. Dennis Kelleher, president and CEO of Better Markets, criticized the SEC’s decision to drop the case against Coinbase, stating, “The SEC used to enforce the law without fear or favor but is now favoring the crypto industry and fearing billionaire crypto kingpins who are publicly belittling the agency.”

Responses from investors were positive, as shares of Coinbase opened more than 3.5% higher following the news. Analysts at Piper Sandler indicated that the dismissal of the lawsuit could alleviate concerns that have kept some investors on the sidelines.

As the SEC pivots towards a more accommodating regulatory environment for cryptocurrencies, it remains to be seen how this will impact future enforcement actions against other exchanges. The agency’s realignment seeks to establish new guidelines that accommodate the evolving landscape of digital assets, with an emphasis on fostering innovation while ensuring adequate investor protections.