The Securities and Exchange Commission (SEC) is vigorously defending its case against Coinbase, the largest cryptocurrency exchange in the United States.

In response to Coinbase's motion to dismiss the lawsuit, the SEC filed a petition urging the federal court not to throw out the case without a trial. The SEC contends that assets listed on Coinbase qualify as securities under U.S. law and argues that cryptocurrencies lack any "innate or inherent value."

Coinbase had sought summary judgement in August, asserting that the SEC's jurisdiction did not cover the assets listed on its exchange, as they were not securities as a matter of law. The exchange invoked the Howey Test, a legal doctrine used to determine if an asset offering constitutes an investment contract and is thus a security under U.S. securities law. The Howey Test typically requires some contractual right to profits for purchasers of the assets, according to Coinbase.

However, the SEC rejected Coinbase's interpretation of the Howey Test, stating, "Howey does not impose any such requirement. And Coinbase cannot cite any case that does." The SEC argued that the test considers factors beyond formal contracts and that no court has ever required a formal contract as a prerequisite for determining an investment contract.

Coinbase responds to SEC motion

Coinbase's chief legal officer, Paul Grewal, dismissed the SEC's arguments as "more of the same old same old." Grewal countered the SEC's position, suggesting that if the SEC's arguments were accepted, everything from Pokemon cards to stamps and Swiftie bracelets could be considered securities, emphasising that such an interpretation is not consistent with the law.

The SEC's filing also addressed Coinbase's attempt to argue that assets sold on secondary markets, like its platform, cannot be classified as securities offerings. The SEC countered this by stating that an investment contract does not lose its nature simply because it is sold on a secondary market.

Coinbase's strategy, as seen in its filing, involves not only challenging the SEC's legal arguments but also engaging in personal attacks against SEC Chair Gary Gensler and the SEC itself. The exchange seems determined to avoid facing the SEC's charges, a strategy observed in other digital asset companies facing legal issues.

Coinbase's legal arguments include drawing parallels with the Ripple case, which had a legal theory that assets sold on secondary markets do not amount to securities offerings. However, the SEC refuted this claim, stating that Coinbase's theory is "unsupported and nonsensical." The SEC argued that Coinbase's extreme position would imply that an issuer could offer a token as an investment contract directly to an investor and, on the same day, the investor could resell the token on Coinbase's platform without it being considered the sale of an investment contract.

The lawsuit between the SEC and Coinbase has attracted significant attention from both supporters and critics of the crypto industry. It reflects a broader debate about how regulatory authorities, particularly the SEC under Chair Gary Gensler, will oversee the rapidly growing and volatile cryptocurrency market. Coinbase's attempt to challenge the SEC's regulatory authority is part of a larger effort by some in the digital asset industry to shift the battle from the courtroom to the legislature. Coinbase, in particular, is leading this effort, advocating for clear rules and regulations from Congress to prevent agencies like the SEC from playing a role in overseeing digital asset operators.

Despite Coinbase's attempts to have the case dismissed, the SEC remains firm in its pursuit of the lawsuit, and the outcome will likely have implications for the broader regulatory landscape of the cryptocurrency industry.