Binance, Coinbase and the US Securities and Exchange Commission (SEC) have been in a legal battle since June last year, when the regulator sued two of the players with significant weight in the cryptocurrency industry.
In both cases, the agency accuses cryptocurrency companies of marketing securities (Securities) not registered and this without permission. An accusation that the two platforms reject and that has kept the ecosystem in suspense for several months Like regulation in the United States A number of demands are being debated.
The court case resumed its activities in 2024. And over the last two weeks, both the regulator's legal team and the exchanges' lawyers have faced questions from two different federal court judges.
In a strange synchronicity, the two judges devoted themselves to questioning both SEC lawyers and the exchanges' legal representatives on the main subject of the lawsuit: Classification or not of the cryptoassets affected by the lawsuit as investment contracts.
In particular, they refer to tokens such as SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH and NEXO.
While Amy Berman Jackson takes care of Binance, Katherine Polk Failla takes care of Coinbase. The hearings are progressing based on the defendant companies' requests.
Coinbase and Binance are trying to convince the court to reject the SEC's allegations that they violate securities laws. The two companies question the use of Howey's test to classify the cryptoassets in question.
They also refer to the “doctrine of guiding questions” (Main questions of teaching). The legal principle is based on a Supreme Court ruling that says federal agencies cannot regulate without express authorization from Congress.
Regardless of the judges' decision, the American ecosystem faces a pivotal event. This will determine the future of the industry. It is recognized that the impact of the rulings will serve as a guide to clarify the jurisdiction and scope of regulation of the SEC.
Some results that will be decisive
Binance, Coinbase and the US Securities and Exchange Commission (SEC) have been in a legal battle since June last year, when the regulator sued two of the players with significant weight in the cryptocurrency industry.
There is no clear winner in this fight so far. Ultimately the future of cryptocurrencies It depends on how this litigation turns out. and how companies like Binance and Coinbase manage to adapt to continue operating in the market.
In any case, the results of the trials lead to two possible options: either the courts dismiss the cases and agree with the exchanges regarding the classification of cryptoassets; or determine that cryptocurrencies are securities.
The above would give the SEC the power, or not, to further regulate the ecosystem using the previous approach. Therefore, a large part of the industry depends on how these requirements develop.
If the judges agree that the list of cryptocurrencies in the lawsuit are securities, the SEC will achieve freedom to decide that others are too. This results in new registration and reporting obligations for issuers and trading platforms.
Companies would have to comply with laws and registration procedures applicable to traditional securities. This would pose a major hurdle for platforms that use qualified assets as such. Federica Pantana, corporate lawyer at Davidoff Hutcher & Citron, pointed this out:
If the SEC wins, it will step up its search for more platforms that would be sanctioned for operating as unauthorized exchanges and trading in unregistered securities. Such a development will increase the authority's legal losses on this front and further reinforce the industry's view that the regulator is going too far.
In this way, a result in favor of the agency is to be feared have a frightening effect in many projects, which leads to uncertainty among developers and entrepreneurs when implementing new products.
Another concern relates to the potential impact on liquidity and business activity associated with cryptocurrencies classified as securities, as their classification could limit their market access or have a negative impact on prices.
The industry will have its jurisdiction
On the other hand, if the court finds consensus on the exchange and says that the SEC has overstepped its mandate or that Congress should enact specific legislation, it will give much of the industry the green light to continue operating more or less as usual.
And although the trial would still be pending for the state to define How and when it regulates an increasingly complex ecosystem will shape the industry for a new jurisprudence.
In this way, the opinions of these trials are added to a series of judgments on the same subject. Creating legal precedents that will influence future decisions related to cryptocurrencies.
In this sense, it is one of the most important precedents that already exists is the case of the SEC against Ripple. The company has been facing a lengthy lawsuit against the regulator since December 2020, in which it was also accused of marketing unregistered securities by selling its native token XRP.
Last year, a ruling from Judge Analisa Torres gave Ripple a partial victory when she found certain sales of XRP did not fall into the category of securities offering. The decision served as a guide for Coinbase and Binance’s current defense. It also supports the arguments of Kraken, another exchange that was also sued by the SEC.
And although the case law also includes cases that support the SEC's arguments, all signs point to the justices hearing the Coinbase and Binance cases Any questions about the regulatory problem triggered in the United States.
Why are we doing this coin by coin? Case by case, judge by judge… It all depends on the whims of each county and not on passing an ordinance telling them this is the ordinance.
Judge Amy Berman Jackson.
We still have to wait and see whether the judges agree with the exchanges or the SEC; or whether or not they will invoke the “main questions doctrine.” But both seem to agree on the need for establishment Norms that define the panorama once and for all. And that's what the two lawsuits indicate.