One of them is Coinbase. The world's largest cryptocurrency exchange is back on the stand Wednesday at a hearing to determine whether it committed securities violations. Coinbase filed a motion to dismiss the lawsuit.
The U.S. Securities and Exchange Commission filed the lawsuit in June 2023, just one day after suing Binance, the largest cryptocurrency exchange by trading volume, over securities issues.
The SEC's claim against Coinbase alleged that 13 cryptocurrencies tradable on the exchange were securities. This list includes major tokens such as Solana, Cardano, and Polygon. Although separate, the Binance lawsuit mentions 12 cryptocurrency assets as securities. The two tokens had six overlapping tokens, SOL, ADA, MATIC, FIL, SAND, and AXS, which the SEC flagged as securities.
Coinbase asked New York District Judge Katherine Polk Failla to dismiss the lawsuit because it argues that unlike a company's shares (stocks), cryptocurrencies do not fall under the SEC's jurisdiction. The exchange, along with other cryptocurrency companies, believes the SEC has overstepped its prerogatives.
Failla questioned the SEC at a Manhattan court hearing. The judge asked the securities expert to explain what elements of a cryptocurrency asset constitute an investment contract. Failla cited concerns that the SEC is seeking permission to “expand the definition of what constitutes a security.”
SEC Chief Litigation Counsel Patrick Costello argued that cryptocurrency assets are similar to investment contracts because they are typically tied to blockchain networks or “entities.” He argued that Coinbase is trying to create its own Howey test, a legal framework for determining whether an asset is an investment contract.