Change of strategy for Coinbase in the lawsuit against the SEC and Gary Gensler.
The political climate in the USA seems to have become a bit more favorable for the crypto sector, and this might have led the exchange to slightly pull back.
The lawsuit against the SEC
The current president of the SEC, Gary Gensler, started explicitly targeting crypto exchanges at the beginning of last year.
His theory is that many of the cryptocurrencies offered for sale by the exchanges should be considered unregistered securities, and therefore should be delisted.
In June 2023 it was discovered that the SEC was also targeting Coinbase, the largest crypto exchange in the United States, as well as a company listed on the Nasdaq.
However, the exchange did not let itself be intimidated and reacted.
After being reported by the SEC, he in turn counter-reported the agency.
Coinbase in fact accused the SEC of not providing clear guidance on how to behave, not even in response to their explicit requests.
The problem
So the problems are two.
As for exchanges like Coinbase, the problem is that they might allow the trading of unregistered securities, as claimed by the SEC.
As for the SEC, that is the U.S. regulatory authority on exchanges and securities, the problem is that it has not been able to provide the exchanges themselves with instructions on how to behave. It has merely filed complaints against them, effectively deferring any decision to a court.
It is necessary to take into account that in the USA there is still no crypto regulation, and that it is not at all easy to try to apply the rules of traditional markets to the new and innovative crypto market.
The main question is whether there are cryptocurrencies or tokens that should be considered securities, and which ones.
This issue can only be resolved by the courts, because only a court can rule whether a given cryptocurrency or a given token should be considered a security. The only problem is that the courts would have to rule individually on each single cryptocurrency or token, and there are tens of thousands of them.
XRP and Ethereum
Bitcoin is certainly considered by everyone to be a commodity, and not a security. Even the SEC and Gary Gensler seem to agree, so as far as BTC is concerned, the problem doesn’t even arise.
As for XRP and Ethereum, the courts have already ruled.
The first ruling concerned XRP, which was considered not to be a security when traded on the secondary market (the exchanges). The judicial proceeding is still ongoing to decide whether it should be considered a security when sold directly by the creator (Ripple) on the primary market.
Instead, as far as Ethereum is concerned, it has been ruled that it cannot be considered a security. It remains to be seen only if the possible staking service offered by third parties (the so-called staking-as-a-service) should be considered an investment contract or not.
No verdict has yet been pronounced regarding any of the other altcoins.
The slowdown of Coinbase in the lawsuit against the SEC and Gary Gensler
The situation starting from May, however, has changed.
In fact, the SEC, in a completely unexpected manner, decided in May to approve the requests for the issuance of ETH on ETH spot, effectively admitting that it does not consider ETH an unregistered security.
It is possible that this change is the result of a new political strategy by the democrats upstream, given that in this election year they do not want to lose the vote of cryptocurrency enthusiasts.
The Democrats, more than the Republicans, have been the main obstacle in recent years to the approval of crypto regulation in the USA, while for example the EU last year approved one, which came into force this year.
In light of all this, Coinbase has changed tactics against the SEC and Gary Gensler. In fact, it has requested to obtain Gensler’s private communications only while he held the role of SEC chairman.
The communications of Gary Gensler
Coinbase claims that the current SEC chairman, Gary Gensler, had clearly expressed the opinion in the past that he did not consider Bitcoin and Ethereum to be securities.
In other words, in the absence of official communications from the SEC on the matter, despite the explicit requests from the exchange, they would like to rely on the official communications particularly from the president.
Gensler was appointed chairman of the SEC in 2021 by the then-new democratic president Joe Biden. It is suspected that he was previously favorable to cryptocurrencies, as evidenced by some videos from previous years.
Once he rose to the presidency of the SEC, it seems that he changed his mind, although in May it appears that he changed it again.
There is, however, still a point to clarify.
Gensler seems to have always been favorable towards Bitcoin, and perhaps a little bit towards Ethereum as well. However, in the past, it does not appear that he has ever evidently declared himself favorable towards cryptocurrencies in general.
Probably Coinbase wants to search in its private communications for something that supports the hypothesis of the total change of perspective since it was appointed by the democratic presidency to lead the SEC. But it might also not find confirmations of this.
It is indeed possible that only explicit confirmations can be found that Gensler was not against Ethereum. However, until September 2022, Ethereum was also based on Proof-of-Work, instead of Proof-of-Stake, and therefore did not have staking.
Defeat of Coinbase?
The fact is that the judge Katherine Polk Failla who is handling the case has not shown consent in siding with the exchange that requested access to all of Gensler’s private communications.
At this point it is quite logical that COinbase has nevertheless decided to take a step back, also because in case of a victory by Donald Trump in November, Gensler will most likely be replaced.
Furthermore, even Trump’s vice-presidential candidate is a bitcoiner. Therefore, it is very likely that the next administration, in case of Trump’s victory, will be favorable to cryptocurrencies.
So this does not seem like a defeat for Coinbase at all, but a change of context within which things for the exchange even seem to be able to go better.
