The SEC is wreaking regulatory havoc in the US. At least that’s the perception of some members of Congress who aren’t happy with the SEC’s approach. Coinbase is particularly unhappy since the company received a Wells notice which could lead potentially to a lawsuit against the US-based exchange. But there is more to that story. In July 2022, Coinbase asked for regulatory clarity by filing a petition to the SEC.

Why hasn’t the SEC answered that petition and how could Coinbase enforce regulatory clarity?

Coinbase seeks clarity

Coinbase filed a rulemaking petition with over 50 questions asking the SEC to give clear guidance on crypto and digital asset trading and services. The petition was signed by over 1,700 individuals and entities who also submitted comments on the issues.

According to the Administrative Procedure Act, the SEC is required to respond within a reasonable amount of time. It can either reply to the petition or simply deny it. However, denying the petition would offer Coinbase the opportunity to go to court over the decision to reject the request of the petition.

For now, Coinbase is going to court to compel the SEC to give a yes or no answer. Should Coinbase succeed, then this would create a unique situation. For the first time, the SEC would be required to give guidelines instead of creating one court case after another.

How is the SEC regulating the market?

Up until this day the SEC is using the so-called Howey test to check if a cryptocurrency or a token constitutes an investment contract. If the answer is yes, then the SEC believes that this particular token is a security according to the securities act.

This has led to an unsatisfying situation. Ripple has been sued by the SEC in December 2020, because the Commission argues that XRP is a security. Therefore, the SEC alleges that Ripple and its executives are being guilty of offering and selling a unregistered security to the American public. XRP is just one example of how inconsistent the regulatory approach is.

It appears that companies in the EU are much more fortunate since MiCA is coming into effect in 2024. Of course, this isn’t helping with the situation in the US at all but it could potentially lead to a situation where Europe becomes a crypto hub while America is struggling to provide necessary frameworks for the industry.

Featured image: © AevanStock / Shutterstock.com