Coinbase challenges SEC's denial of new crypto rulemaking in court

Coinbase Chief Legal Officer Paul Grewal said Friday that the crypto exchange is challenging the Securities and Exchange Commission's move to deny its request for new digital asset regulation. 

Earlier in the day, the SEC denied Coinbase's long-running request for new rules, calling it "unwarranted." 

"Today the SEC denied Coinbase’s petition for rules for crypto," Grewal posted on X. "After 18 months of silence, we went to court to get the response the law requires. With appreciation for the Third Circuit, later today we'll again seek its help by challenging the SEC’s abdication of its duty."

Coinbase and the SEC have butted heads since the exchange asked for new rules in 2022. Grewal noted that Republican SEC Commissioners Hester Peirce and Mark Uyeda disagreed with the denial and pointed to a need for dialogue between regulators and the crypto industry. 

"We're grateful that two Commissioners disagreed with the denial and called for real dialogue," Grewal said. "We should be working together to create laws and rules that will benefit consumers and U.S. innovation, not defending lawsuits based on legal positions that change month after month."

Later on Friday, Coinbase filed its petition for review in the U.S. Court of Appeals for the Third Circuit — meaning the exchange is asking the court to assess whether or not the SEC's move to deny its petition for rulemaking was proper. 

"Coinbase’s mandamus petition thus has now achieved its stated purpose of compelling the SEC to act on Coinbase’s request for rulemaking," according to the filing. "The Commission’s formal denial of that request makes explicit what its words and actions had long shown was the Commission’s position. By doing so, the SEC has cleared the path for judicial review that its unexplained inaction had long obstructed."

SEC's actions

The agency has not proposed crypto specific rules, but has put forward some rulemakings over the past year that would apply to the industry. For example, the SEC reopened a custody rule that would require registered investment advisors to keep crypto with a qualified custodian, and require those custodians to follow certain requirements. 

The SEC has also taken enforcement actions over the past year, including against Coinbase for operating as an unregistered exchange, which is ongoing. Coinbase has said the judge should throw out that case

An important part of the SEC's responsibility is figuring out how to divvy out resources, SEC Chair Gary Gensler said on Friday. He emphasized that the crypto market is small compared to the rest of the capital markets, which the agency oversees. 

"While the crypto market experiences outsize fraud, abuse, and noncompliance relative to its size, it nevertheless is a small portion of the bigger-than-$110 trillion capital markets. It is important that the Commission maintain discretion to direct focus to whichever parts of the capital markets need updated regulation," Gensler said. 

Updated at 3:50 p.m. ET to include an update on Coinbase's petition for review