Coinbase asks appeals court to direct SEC to begin writing rules for crypto

Coinbase argued on Monday that an appeals court should direct the Securities and Exchange Commission to begin a "long-overdue rulemaking process." 

The Securities and Exchange Commission violated the Administrative Procedures Act by not engaging in rulemaking and for not providing a detailed reason why it denied Coinbase's rulemaking petition, Coinbase said in its opening brief filed on Monday in the Court of Appeals for the Third Circuit. The act governs how federal agencies develop and issue rules. 

"The SEC lacks statutory authority to extend the existing securities regime to digital assets. But if the SEC insists on plowing ahead without congressional authorization, that decision must be made and implemented through prospective rulemaking," Coinbase said. 

The two have gone head to head over the need for rulemaking for years. Coinbase first asked the SEC to issue a formal rulemaking process to "provide guidance for the crypto industry" in July 2022. Although the SEC has not introduced crypto-specific regulations, it has proposed rules in the past year that apply to crypto. For instance, the SEC reopened a custody rule, mandating that registered investment advisors store crypto with a qualified custodian, who must adhere to specific requirements.

Coinbase ultimately tried to compel the agency to a yes or no response to its rulemaking petition and sued the SEC in April 2023. The SEC later denied the request for new rules, and Chair Gary Gensler said that existing rules already apply to crypto. Gensler also said at the time that an important part of the SEC's responsibility is figuring out how to divvy resources. He emphasized that the crypto market is small compared to the rest of the capital markets, which the agency oversees. 

In a separate ongoing case, Coinbase is being sued by the SEC for operating as an unregistered exchange. 

Next, the SEC will file an opposing brief in April, and then Coinbase will have a few weeks to reply. If the third circuit decides to hold oral arguments, that would not take place until the late summer or early fall. A decision from the Third Circuit could come towards the end of 2024 or into 2025, according to a person familiar.