Coinbase Has 70% Victory Odds Against SEC – Bloomberg Legal Analyst

Bloomberg’s Senior litigation analyst Elliott Stein believes that Coinbase has a 70% chance of winning its lawsuit against the United States Securities and Exchange Commission (SEC).

Coinbase and SEC Lawsuit Gets Heated

The SEC’s lawsuit against Coinbase took a new turn a few days ago after Judge Katherine Polk Failla posed an interesting question to the regulator’s lawyers. On the premise that the SEC’s description and definition of some crypto terms are not clear, the Federal judge requested that the regulator highlight the specific features of a token that make it an investment contract. 

This request immediately seemed to give Coinbase an edge against the securities watchdog and now it is more likely that the American cryptocurrency exchange might bag a victory, per Stein’s opinion. 

According to his observation, Judge Failla wanted a limiting principle to the regulator’s definition of an “investment contract” that does not include collectibles.

The Bloomberg litigation analyst believes that the definition offered by Coinbase is more compelling compared to that of the securities regulator. Coinbase’s explanation required investment in a business rather than just an ecosystem. 

Ripple and Grayscale Precedence

Stein went on to reference Ripple’s victory against the SEC in July 2023, citing how it suggested that the sales of digital assets on public exchanges do not perfectly fit into the purview of the Howey Test’s definition of an investment contract. 

This argument ended up leading Judge Analisa Torres to declare that XRP is not a security and in the long run, the verdict gave Ripple its victory after almost three years of legal chaos with the SEC. The same thesis now applies to Coinbase. Meanwhile, this was one of the SEC’s fears when Judge Torres decided on XRP; that the decision might negatively impact other ongoing lawsuits including that of Binance and Coinbase. 

Unfortunately, the regulator has not had it easy in the last few months following Ripple’s victory.  Investment asset management firm Grayscale also won a lawsuit against the SEC. The firm once tried to convert its Grayscale Bitcoin Trust (GBTC) to a physically-backed ETF but constantly met a roadblock. 

Eventually, it sued the SEC and after a lengthy legal brawl, a judge said that the SEC failed to recognize the “obvious financial and mathematical relationship between the spot and futures markets.” 

In the end, the SEC was mandated by the court to consider Grayscale’s GBTC, a verdict many believed helped in securing the SEC’s approval for the spot Bitcoin ETF products now trading in the US today. As it looks, Coinbase may be the next crypto firm to win a case against the regulator.