SEC pivots: what it means for crypto

Coinbase’s defense against the SEC’s allegations and the resulting dismissal carry important implications for crypto firms, general counsels, and institutional stakeholders navigating the uncertain terrain of U.S. securities regulation. If approved, this agreement is expected to be finalized and Coinbase would not be subject to any fines.

Background: the SEC’s case and Coinbase’s defense

The SEC’s lawsuit, filed in June 2023, alleged that Coinbase operated as an unregistered securities exchange, broker, and clearing agency. The SEC argued that certain digital assets traded on its platform qualified as securities under the Howey test and that Coinbase’s failure to register deprived investors of protections, such as the SEC inspections and recordkeeping requirements. The case highlighted the SEC’s previously broad crackdown on the digital asset industry under former Chair Gary Gensler. The SEC’s stance was in sharp contrast to its 2021 approval of Coinbase’s Initial Public Offering, which was understood by many market participants to imply regulatory acceptance of its business model. Coinbase countered that the SEC’s enforcement action represented an improper expansion of its authority, lacked clear statutory basis, and violated principles of fair notice and due process.

In March 2024, federal judge Katherine Polk Failla heard oral arguments on Coinbase’s motion to dismiss, and, in turn, dismissed part of the SEC’s case, signaling concerns over the agency’s legal approach. Months later in early in January 2025, the Southern District of New York granted Coinbase’s request for an interlocutory appeal to the Second Circuit Court of Appeals, further validating concerns that the SEC’s claims rested on novel and untested interpretations of securities law. The SEC’s decision to file a dismissal of the lawsuit in its entirety (and with prejudice) underscores the challenges the agency faces in extending traditional securities regulations to digital assets through enforcement rather than rulemaking.

Key takeaways

Regulatory overreach can be contested: Coinbase’s victory is not just a milestone for the crypto industry—it highlights that companies across innovative and emerging sectors facing aggressive regulatory enforcement can push back and may have viable legal defenses, particularly when regulatory agencies exceed their statutory authority. This case underscores that courts may be skeptical of enforcement actions that attempt to regulate without clear legislative or rulemaking foundations.

Judicial scrutiny of SEC authority: The court’s willingness to certify an interlocutory appeal suggests increasing skepticism about the SEC’s unilateral expansion of its jurisdiction over digital assets. This could set an important precedent for future cases challenging the agency’s regulatory reach.

Shift in SEC strategy: The SEC’s decision to drop the case is consistent with the SEC’s recalibration of its approach to crypto enforcement. Recent moves, including (i) the formation of a dedicated crypto task force, (ii) the current administration’s nomination of Paul Atkins as the SEC chair and (iii) the SEC’s dropping of its investigations into Uniswap Labs, Robinhood Crypto, and OpenSea, are each indicative of a pivot toward a more structured regulatory framework rather than litigation-driven oversight.

Implications for crypto compliance: While Coinbase’s victory provides a roadmap for resisting overbroad enforcement actions and likely less regulatory scrutiny, firms operating in the digital asset space should continue to remain cautious and adopt robust compliance strategies. Regulatory uncertainty remains, and engagement with policymakers and regulators will be critical to shaping a sustainable framework.

Looking ahead

The resolution of SEC v. Coinbase represents a defining moment in the legal battle over digital asset regulation. However, it does not resolve the broader questions surrounding whether and how digital assets should be classified under current securities laws in the U.S. Market participants should continue to monitor regulatory developments, judicial rulings, and legislative initiatives that could shape the future of the crypto industry.

For further guidance on navigating regulatory risks in digital assets, please contact the A&O Shearman fintech and blockchain team.