Key Turning Point for Coinbase Lawsuit by the U.S. SEC: Cryptocurrency Market at a Disadvantage, Bitcoin Slides

The price of Bitcoin experienced a roller-coaster ride on Wednesday, surging to nearly $72,000 before dropping below $69,000.

This Tuesday, the net inflow of funds into the spot Bitcoin ETF fund soared to its highest level in two weeks, exceeding $417 million. This ignited the emotions in the cryptocurrency circle, driving the rise of Bitcoin.

However, legal issues faced by the cryptocurrency exchange Coinbase subsequently dampened investors' enthusiasm, causing Bitcoin to decline. News on Wednesday morning Eastern Time showed that Coinbase's motion to dismiss the U.S. Securities and Exchange Commission (SEC) lawsuit against it was rejected, allowing the SEC as a regulatory body to continue its litigation against Coinbase.

According to court documents from March 27, U.S. District Judge Katherine Failla made the above ruling. The SEC accused Coinbase of operating as an unregistered exchange, broker, and clearing agency.

The judge wrote:

The court finds that the SEC has adequately alleged that Coinbase operates as an exchange, broker, and clearing agency under federal securities laws and engages in unregistered securities issuance and sales activities through its staking program.

While the term cryptocurrency may be relatively new, the challenged trading practices fit squarely within the framework the courts have used for nearly eight decades to identify securities.

The SEC sued Coinbase in June 2023, alleging that it listed 13 tokens considered securities, in violation of federal securities laws.

Analysts point out that the latest ruling is significant for the cryptocurrency circle:

A motion to dismiss ruling, like Wednesday's ruling, is not a final ruling on the merits of the dispute. When evaluating such motions, even assuming all of the plaintiff's allegations are true, a federal judge will only dismiss a case when there is no credible evidence that the law has been violated.

However, in Wednesday's ruling, U.S. District Judge Kathleen Failla not only found that most of the SEC's allegations against Coinbase are suitable for trial, but also expressed support for the SEC's long-held view on cryptocurrencies, that many tokenized assets constitute securities and fall within the SEC's regulatory purview.

For Coinbase, it's not all bad news as the company also secured a small victory. The judge dismissed the SEC's charge that Coinbase acted as an unregistered broker through its wallet application.

In a key lawsuit against the SEC last August, Grayscale won, with a judge from the Washington D.C. Circuit Court of Appeals ruling that the SEC's decision to approve a Bitcoin futures ETF while rejecting Grayscale's conversion of GBTC to a spot Bitcoin ETF was "arbitrary and capricious" This court ruling has triggered a significant increase in the current round of cryptocurrency, as people speculate that the U.S. SEC will eventually have to compromise, giving the green light to the growing demand for spot Bitcoin ETFs. And indeed, that's the case.

The U.S. SEC has not had an easy time in its confrontation with the cryptocurrency industry. When the Bitcoin ETF was approved for listing, SEC Chairman Gary Gensler stated that a court ruling last year forced the SEC to change its stance, ultimately approving the listing of spot Bitcoin ETFs. This case against Coinbase may perhaps be a turning point for the SEC's crackdown on digital currencies