US court refuses to recognize the secondary sale of cryptocurrencies on Coinbase as securities trading

The decision concerns an investor class action lawsuit dated March 2022

08.04.2024 - 08:20

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What’s new? Crypto exchange Coinbase has won a significant victory in an ongoing cryptocurrency transaction class action lawsuit. The US Court of Appeals ruled in favor of Coinbase, confirming that secondary sales of cryptocurrencies on the platform do not violate the Securities Exchange Act of 1934. The decision affects a group of users who traded on Coinbase between October 8, 2019, and March 11, 2022. At the heart of the dispute was whether cryptocurrencies traded on Coinbase met the criteria of securities.

The court’s decision

What else is known? A group of plaintiffs filed a lawsuit in March 2022, alleging potential violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, as well as California, Florida, and New Jersey state laws. It argued that Coinbase’s actions amounted to the offering and sale of unregistered securities.

The court’s decision depended heavily on the interpretation of Coinbase’s user agreement, which has changed over time. Despite losing, the plaintiffs see the court’s decision as a step forward in holding crypto platforms accountable under securities laws, aimed at protecting investors in an emerging industry. Coinbase, on the other hand, argues that the decision reinforces its position that secondary sales of cryptocurrency are not securities transactions.

In late March this year, a court denied Coinbase’s motion to dismiss a lawsuit by the US Securities and Exchange Commission (SEC) for operating without registration and violating securities laws. However, Coinbase General Counsel Paul Grewal noted that such applications against government agencies are almost always dismissed the first time around, and the exchange’s main goal remains to clarify crypto regulation: “We encourage Congress to build on the momentum we saw last year to advance comprehensive digital assets legislation in the US.”

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