Coinbase (COIN.US) is suing the U.S. SEC over new crypto regulations

Coinbase (COIN.US), the largest cryptocurrency exchange in the US, faced off against the US Securities and Exchange Commission (SEC) on Monday at the US Court of Appeals for the Third Circuit in Philadelphia, urging the regulator to create new rules for digital assets.

Coinbase sued the SEC last year in an attempt to force the regulator to act on its rulemaking petition, which it submitted in 2022.

In the petition, Coinbase urged the SEC to clarify when digital assets are securities and create a new market structure framework that is compatible with cryptocurrencies.

The SEC rejected Coinbase's petition in December 2023, saying existing financial market regulations also apply to cryptocurrencies. SEC Chairman Gary Gensler has repeatedly stated that most cryptocurrencies are securities and fall under the SEC's jurisdiction.

Coinbase on Monday asked the federal appeals court to overturn the SEC's decision, saying the regulator has left the cryptocurrency company unable to operate and comply with US regulations.

Coinbase's lawyer Eugene Scalia told the three-judge appeals court that the SEC has been arbitrary and capricious, providing little guidance to the company on how to register with the agency and comply with US laws.

The cryptocurrency industry widely believes its operations are in a regulatory gray area, not covered by existing US securities laws, and need new legislation to regulate the industry.

The SEC's lawyer argued that the agency does not need to create new rules for the industry, as existing regulations are sufficient.

In addition to fighting in court, Coinbase has urged cryptocurrency investors to contact their House representatives in support of the Financial Innovation and Technology Act of the 21st Century (FIT21), which passed the House earlier this year. The bill aims to provide a clear legal and regulatory framework for digital assets and blockchain technology.