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Coinbase Files Court Action to Compel SEC’s Response to Rulemaking Petition

Coinbase has launched an action in a federal court in the United States seeking to compel the country’s securities regulator to issue a “yes or no” response to a petition filed by the exchange in July 2022.

The Securities and Exchange Commission (SEC) was petitioned to develop and implement clearer regulatory standards for the cryptocurrency industry in the United States. Coinbase petitioned the SEC to answer 50 specific concerns about the regulatory handling of various digital assets. The queries varied from requesting clarification from the SEC on how it classifies tokens as securities to requesting clearer criteria for the buying and sale of cryptocurrencies on SEC-regulated exchanges.

Coinbase Chief Legal Officer Paul Grewal wrote a blog post accompanying the action, stating that the Administrative Procedure Act requires the SEC to reply to the exchange’s rulemaking petition “within a reasonable time.”

After more than nine months with no response, the exchange is pushing hard for an answer:

“It appears that the SEC has already decided to deny our petition.” However, they have not yet informed the public. So the action Coinbase filed today simply requests that the court request that the SEC reveal its conclusion.”

“It’s critical for the SEC and any other agency petitioned for rulemaking to respond to the petition once the agency has made up its mind,” Grewal explained. Grewal stated that clarity on these issues is critical, especially given that Coinbase got a Wells Notice from the SEC on March 22, hinting at probable enforcement actions against the crypto exchange.

“Coinbase and other cryptocurrency companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business,” Grewal wrote. 

On February 9, Coinbase’s peer exchange Kraken settled with the SEC for $30 million for failing to register its staking-as-a-service business, which the SEC said was a security.

Internally, this move was contentious, with SEC Commissioner Hester Peirce calling the SEC’s actions “not an efficient or fair way of regulating” and criticizing her own agency for closing down a “program that has served people well.”

On February 12, the SEC and the New York Department of Financial Services ordered Paxos, the issuer of the US dollar-pegged stablecoin Binance USD $1.00, to cease minting and issuing the token.

Adding to the barrage of anti-crypto activity in the United States, Democratic Massachusetts Senator Elizabeth Warren said on March 31 that she will establish a “anti-crypto army” as part of her Senate re-election campaign. 

As the United States becomes more hostile to the cryptocurrency business, Coinbase has indicated its desire to relocate some of its operations elsewhere. Coinbase got a license to operate in Bermuda on April 19 and is apparently planning to establish a futures exchange there as soon as this week.  Because Coinbase is the only publicly traded cryptocurrency exchange in the United States, experts will be watching the exchange’s upcoming earnings report on May 4 to measure the health of the broader crypto sector in the United States.


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