If there was any remaining doubt that the Trump White House was going to make a break from President Biden’s hostile posture towards the crypto industry, that is surely gone today.

This morning Coinbase announced that it reached an agreement with the Securities and Exchange Commission (SEC), which sued the company in June 2023 for, among many things, operating as an unlicensed national securities exchange, for the complete dismissal of the lawsuit. Coinbase will not pay any monetary penalties, and it will not have to change any aspects of its business. The case will be dismissed with prejudice, meaning that it cannot be refiled at a later date.

“We were not looking to pay some fine,” says Coinbase Chief Legal Officer Paul Grewal.  “But if they [the SEC] wanted to right the wrong, admit that this was a huge mistake, and withdraw the case, we wouldn’t stand in their way. That’s what ultimately has come to pass today.” 

The actual dismissal cannot happen until next Thursday, when the three current commissioners Mark Uyeda, Hester Peirce, and Caroline Crenshaw will vote on the proposal. Grewal says that Coinbase decided to make the news public today because it will be filing an 8-K form with the SEC, so the information was going to get into the public domain regardless. These forms are filed by companies registered with the SEC to announce major events that shareholders should know about. The SEC declined to comment on the potential dismissal when reached for comment.

The fact that the case was dismissed with prejudice, as opposed to a settlement with even a nominal fine, is a massive win for the industry and a vindication of its view that the SEC’s position was unfair. 

“They sued us without any basis in law. They sued us without telling us what the rules were,” says Grewal. “They dropped on Coinbase and the rest of the industry, effectively a tax on American innovation that cost hundreds of millions, if not billions of dollars.”

Implications for Binance, Kraken, and Uniswap

The next question is what will happen to the suite of similar lawsuits that the SEC has filed against Coinbase competitors like Binance and Kraken, as well as leading decentralized exchange Uniswap. Grewal is hopeful that these firms will see similar resolutions in the near term. “It’ll ultimately be up to the SEC and those other parties to kind of hammer that out,” he says. “But we think we’ve offered a template or a model for others to follow, and I’m confident we’re going to see peace across the industry break out in short order.”  

One former SEC official familiar with the cases, who spoke to Unchained on the condition of anonymity agreed that similar dismissals are likely. “I would think that if they are dismissing this, that we’ll see in the coming days all the other cases get dismissed. I don’t see how they can keep those cases.” 

A possible exception that the former official pointed to was the Binance case, because that lawsuit, also filed in June 2023, contained allegations of fraud and manipulative trading that were not included in the other complaints. The former official noted that the SEC may be reluctant to drop those charges because they could lead to actual customer harm. On February 13th a federal judge approved a joint request from Binance and the SEC to allow a 60-day pause on the case, citing a pending framework that could provide greater regulatory clarity for the industry. 

Crypto Still Needs to Even the Playing Field

But as much as this case is being celebrated in crypto circles, there are still many important questions that need to work out for the industry to become more trustworthy and transparent. The dismissal does nothing but make it clear that the SEC will allow secondary sales of tokens on exchanges like Coinbase and create breathing space for regulators and lawmakers in Congress to draft rules to govern the industry. Congress is working on legislation that will set rules of the road for the $200 billion stablecoin sector and a market infrastructure bill to govern spot crypto trading and delineate lines of authority between the SEC and its sister agency the Commodity Futures Trading Commission (CFTC).

Commissioner Hester Peirce is leading a newly created agency-wide Crypto Task Force “dedicated to developing a comprehensive and clear regulatory framework for crypto assets.” In a February 4th blog post Peirce makes clear that a top priority is to eliminate information asymmetries between project insiders and the broader investing public, as illustrated by the recent fiasco with the LIBRA memecoin. 

Peirce wrote, “The Task Force also is thinking about the possibility of recommending Commission action to provide temporary prospective and retroactive relief for coin or token offerings for which the issuing entity or some other entity willing to take responsibility provides certain specified information, keeps that information updated, and agrees not to contest the Commission’s jurisdiction in the event of a case alleging fraud in connection with the purchase and sale of the asset.”

Christopher Giancarlo, former chairman of the CFTC, argues that now might be the perfect time to completely upend the way that information disclosures work across industries. He is an advisor to a company called Bluprynt, which is using blockchain technology to instantaneously distribute market data and information disclosures on chain for everything from tokenized shares of Coinbase stock to oil production.

“You have sort of a sliding spectrum of whether there’s centralization of information or decentralization of information [depending on whether the asset is a security or commodity],” says Giancarlo. “We’re going to have to take a much more holistic view, but the technology will provide us with the tools we need to level off information across the scale from totally decentralized commodities right up to highly centralized ICOs.” 

For crypto to truly turn the page, this dismissal should be seen as a catalyst for all of these conversations to accelerate. But for now, Grewal hopes that the SEC will go back to searching for actual bad actors in the space. “The SEC and others should focus on fraud. Fraud has no place in any market, and crypto is no exception to that. Unfortunately, Gary Gensler decided to spend millions of taxpayer dollars on all sorts of other odysseys, frolics, and detours that had nothing to do with fraud.”