Crypto Spring: SEC Abandons Coinbase Case, Signaling the End of Its Crypto Crackdown

The U.S. Securities and Exchange Commission (SEC) has agreed to dismiss its lawsuit against Coinbase, the largest U.S.-based cryptocurrency exchange. This decision, pending approval from the SEC's commissioners, marks a pivotal moment in the regulatory landscape for digital assets.

The SEC's scrutiny of Coinbase intensified in March 2023 when the exchange received a Wells notice, indicating the regulator's intent to pursue enforcement action over Coinbase's staking products. The exchange's staking-as-a-service allowed investors to receive interest on their holdings without direct involvement in the protocols.

In June 2023 the SEC filed a lawsuit against Coinbase, accusing it of operating as an unregistered securities exchange and broker. The lawsuit claimed that Coinbase facilitated trading of at least 13 crypto tokens that should have been registered as securities, thereby operating without proper regulatory authorization. The case included multiple confirmations of why these assets are to be considered securities, including tweets and promos.

The hearings during 2024 mostly supported the SEC's case. The court found that the SEC had sufficiently pleaded that Coinbase operated as an unregistered exchange, broker, and clearing agency under federal securities laws. Only the Coinbase Wallet application part was dismissed, as the court ruled that the SEC failed to prove Coinbase acted as an unregistered broker through that service.

The election of President Donald Trump in November 2024 brought a shift in the regulatory approach toward cryptocurrencies. The new administration signaled a more lenient stance on digital assets, with promises to position the U.S. as a global crypto hub. This political shift raised industry expectations for a favorable resolution to ongoing regulatory disputes, including the SEC's lawsuit against Coinbase.

On January 7, 2025, in what was seen as the first legal win for Coinbase, the court granted the company permission to appeal a key legal question before proceeding (an interlocutory appeal). This appeal focused on whether the Howey test (a legal test used to determine if something is a security) applies to cryptocurrencies when they are traded on secondary markets (like exchanges). The judge recognized that this was a major legal issue and that experts strongly disagreed on how the law should apply to crypto assets. Because of this uncertainty, the court allowed a higher court to weigh in before continuing the case.

However, the Court of Appeals never issued a ruling on the matter before the case took a different turn.

Today, Coinbase's CEO, Brian Armstrong announced that the SEC staff had agreed in principle to dismiss its lawsuit against the cryptocurrency platform, pending approval from the SEC's commissioners. He stated that the dismissal would involve no fines or changes to the company's operations.

This decision from the SEC leadership is anticipated to be finalized in the coming week. Coinbase's Chief Legal Officer, Paul Grewal, expressed optimism, stating, "It's a great day for Coinbase, yes, but it's also a great day for crypto in America."

The dismissal of this lawsuit is expected to have far-reaching implications for the cryptocurrency industry. It could potentially set a precedent for how digital assets are regulated in the United States and globally.