Coinbase has a 70% chance of being completely dismissed in the SEC case – litigation analyst

Bloomberg's senior litigation analyst Elliott Stein has suggested that there is little chance of failure for cryptocurrency exchange Coinbase in the ongoing lawsuit against the United States Securities and Exchange Commission (SEC). Stein predicts a 70% chance of the exchange securing a full dismissal in the lawsuit.

In a Jan. 19 post on X (formerly Twitter), Stein was confident Coinbase could successfully challenge some of the SEC's claims before the hearing, but not the allegations related to its casting rewards program and overall operating structure.

But after five hours of hearing, his confidence changed:

“See SEC v. I entered Coinbase hearing that COIN would, in this move, dismiss the SEC's prior claims (regarding the business) but probably not the lawsuits and brokers' claims. I left it thinking that COIN would win a complete farewell.”

The SEC alleges that by holding clients' assets, receiving and returning rewards on their behalf, Coinbase is offering and selling investment contracts, thereby falling under SEC regulations.

Additionally, the regulator alleges that Coinbase was operating as an unregistered broker. Meanwhile, Coinbase has strongly rejected this, there is no easy way to register a crypto exchange for a license.

However, Stein notes that the turning point was when Coinbase proposed a more precise definition of “investment contract” than the SEC.

“My view is that what is offered by Coinbase is more compelling, requiring investment solely for the business and ecosystem, with an enforceable mandate,” he said.

Lower Manhattan Federal Court Greetings! Today's episode: @coinbase moves to drop @SECGov suit. A great (4 hour long!) argument, with a top lawyer, amazing/unsettled legal q, and Judge Faila – must be as sharp as a knife and with a sense of humor bigger than the Sahara. pic.twitter.com/qwR4q4ZAkh

— Elliott Z. Stein (@NYCStein) January 17, 2024

However, he mentioned the recent SEC and Ripple case, Ripple won in part in July 2023. The judge said that XRP (XRP) is not considered a security when it comes to retail sales on cryptocurrency exchanges.

Stein points out the ruling around securities, in this case, will have a domino effect on the Coinbase lawsuit as well.

“As the Ripple ruling in July suggested, the sale of digital assets on public exchanges does not properly fit the Hawaii test for investment contracts,” he argued.

Related: Crypto Biz: Coinbase Vs. The SEC case will determine the fate of crypto tokens

On January 17, Cointelegraph US District Judge Catherine Polk filed a five-hour hearing from the SEC and Coinbase on the crypto exchange's distribution request.

On a familiar note to the crypto community, Failla asked SEC attorneys to explain why digital token issuance meets the Hawaii test, arguing that the issue is “too broad.”

The SEC filed a lawsuit against Coinbase on June 6, 2023, alleging that the crypto exchange violated federal securities laws.

The agency argued that 13 tokens listed on Coinbase are securities, including Solana's (SOL), Cardano's (ADA), Polygon (MATIC), Filecoin (FIL), Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ). Flow (Flow), Internet Computer (ICP), Near (Near), Voyager (VGX), Dash (DASH) and Nexo (NEXO).

Magazine: Coinbase Fights SEC in Court, SBF Parents Want Lawsuit Dropped, and Bitcoin ETFs: Hodler's Digest, January 14-20