Coinbase finds momentum in SEC case following significant Ripple XRP ruling

Coinbase’s
arguments in its legal case against the U.S. Securities and Exchange Commission have been strengthened after a key court ruling went partially in favour of cryptocurrency firm Ripple, the U.S. exchange’s legal chief told CNBC on Friday.

On Thursday, a U.S. judge ruled that XRP token purchases via exchanges were not securities transactions. The SEC sued Ripple, the company behind the XRP token, in 2020, alleging that the company broke securities laws.

The ruling was celebrated by the cryptocurrency community and exchanges, as it provides more regulatory clarity.

Coinbase, which is currently facing a lawsuit from the SEC, is particularly encouraged by the XRP court opinion and believes it strengthens their own case against the SEC.

“For exchanges, for tokens that are listed on exchanges, for regular investors, there’s no question that this ruling strikes a blow to the idea that somehow securities are being traded when people go onto exchanges and trade the assets,” said Paul Grewal, chief legal officer at Coinbase, in an interview with CNBC.

He expressed confidence in Coinbase’s success, stating, “I think we will win. Now, I thought we would win before this decision. We think this decision has only further strengthened the case.”

Coinbase sees hope for other cryptocurrencies if XRP is not classified as a security, suggesting that it could exempt hundreds of other tokens from security laws.

“I think it would be a mistake to assume that, in every instance, and in every transaction, the securities laws do not apply. That’s never been Coinbase’s position, I don’t think it should be anyone’s reasonable position. But if you literally replaced the letters XRP with the letters for any other token, in this decision, the logic still holds,” Grewal explained.

However, the ruling did classify selling XRP to sophisticated investors or institutional clients as a securities transaction.

Coinbase has been focused on expanding its institutional trading platform. Grewal dismissed concerns related to Ripple’s sale of XRP to institutional clients, as it does not impact the argument that tokens traded on exchanges are not securities.

“I think all investors, institutional and retail, can take great comfort from the fact that, when it comes to exchange trading, where there is arm’s length dealing, the court has made it very clear, these tokens are not being traded as securities,” Grewal emphasized.

The classification of cryptoassets as securities has significant implications, including the need for registration with the SEC and adherence to strict disclosure requirements. It also grants the SEC authority over these assets and related entities, such as cryptocurrency exchanges.

While the SEC has maintained that most cryptocurrencies are securities, the XRP ruling appears to weaken their argument.

The crypto industry has expressed frustration with the SEC, accusing the agency of enforcing regulations without clarity or collaboration with the industry.

Tyler Winklevoss, co-founder of cryptocurrency exchange Gemini and also facing a SEC lawsuit, criticized the regulator as a “failed institution.”

Grewal believes the SEC’s actions were not motivated by an ideological battle against the crypto industry, but rather done in “good faith.” However, he acknowledges that the SEC has made mistakes and calls for new rules to properly address the challenges presented by this new technology.