Is Coinbase superior?
Elliott Stein, a senior litigation analyst at Bloomberg, estimates that major U.S. cryptocurrency exchange Coinbase has a 70% chance of success in its lawsuit with the U.S. Securities and Exchange Commission (SEC). did.

I went into SEC v. Coinbase hearing thinking $COIN would, on this motion, win dismissal of SEC’s primary claims (concerning trading) but maybe not staking and broker claims. I left thinking COIN would win full dismissal. Snippet below and full note here: https://t.co/UfjiByMLzS https //t.co/7Y2Z93Nrwt pic.twitter.com/yLUUEwdVkl
— Elliott Z. Stein (@NYCStein) January 19, 2024

Before the SEC v. Coinbase hearing, I thought Coinbase would get a dismissal of the SEC’s main claims (trading-related), but the staking and broker claims would not be dismissed. However, now that the trial is over, we believe there is a chance that Coinbase will win a complete dismissal.

On the 17th, the US District Court for the Southern District of New York held a hearing on Coinbase’s request to dismiss the lawsuit. This lawsuit, filed by the SEC in June of last year, primarily questions the security nature of virtual currencies, with the definition and characteristics of an “investment contract” as the basis for judgment at the center of the controversy.
During the deliberations, Judge Catherine Polka Failla focused her questions on case law defining securities and the attributes of Coinbase’s virtual currencies that the SEC considers to be investment contracts. The judge questioned the lack of clarity in the SEC’s explanations and definitions of virtual currency terminology, and asked for details on the specific characteristics that make a token an investment contract.
Regarding the SEC’s definition of securities, Judge Failla also expressed concern that the debate may have become “too broad,” stating that the provision of staking services is not a traditional investment vehicle that should comply with securities laws. expressed the opinion that there is little similarity between the two.
connection: U.S. District Judge speaks in favor of Coinbase in lawsuit against SEC
Mr. Stein’s analysis
Stein believes Coinbase’s definition of an investment contract is sounder and more persuasive than the SEC’s definition.

The judge wanted the SEC’s definition of an “investment contract” to be limited to include collectibles. We think what Coinbase has presented is more compelling, as it requires legally enforceable obligations and investment in the business rather than just the ecosystem.

He cited the example of Ripple’s partial victory in an SEC lawsuit in July last year, when it was ruled that the virtual currency XRP is not a security. He pointed out that the sale of cryptocurrencies on exchanges “does not fit neatly” into the Howie test’s definition of an “investment contract.” Furthermore, if Ripple’s lawsuit continues, it is likely that it will reach the Supreme Court, which could narrow the scope of the Howie test.

What is the Howie test?
The Howie test is a test used in the United States to determine whether a particular transaction falls under one of the definitions of a securities transaction called an “investment contract.” It originates from the SEC’s lawsuit against W.J. Howey.
Virtual currency glossary

connection: “Virtual currency XRP itself is not a security,” US district court rules in court.
He also argued that the SEC’s claim that the staking offering violates securities laws is defeated by the “investment” agreement offered by Coinbase. Regarding the SEC’s assertion that Coinbase provides the function of a broker, the company also expressed its belief that Coinbase’s rebuttal is based on valid arguments and is superior to the SEC’s argument.
Deliberations lasted more than four hours on the 17th, but Judge Failla did not make a decision in court, indicating that he would carefully consider the content of the case.
Mr. Stein said he expected a decision to be rendered by the end of the second quarter at the latest, but it could be sooner because Judge Failla is “very competent.”
Applying the material issues principle
Last August, U.S. senators Cynthia Lummis and Kirsten Gillibrand asked the court to dismiss the SEC’s lawsuit, arguing that cryptocurrencies are an issue of national importance and that Congress should provide direction. So I filed a petition.
Coinbase argues that “the materiality doctrine should apply” to this lawsuit. On the other hand, the SEC stated that the presence of virtual currencies in financial markets is extremely small, so there is no need to apply the materiality doctrine in this case, and the SEC is obligated to apply existing securities laws.
The “Major Questions Doctrine” is a U.S. Supreme Court precedent that states that federal agencies cannot regulate issues of political or economic importance without specific authorization from Congress.
Fortune magazine said Judge Failla seemed hesitant to apply the “material issues doctrine,” alluding to the fact that it is rarely used in judgments.
Reuters also conveyed a similar impression, so US media seems to think it is unlikely that the court will accept Coinbase’s argument on this point.
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