In a bold move, US-based cryptocurrency exchange Coinbase has reignited its push for clear regulations in the crypto industry, leveraging the recent legal action taken by the Securities and Exchange Commission (SEC) against Kraken. The exchange’s legal team, in a document filed on 22 November with the US Court of Appeals for the Third Circuit, responds to the SEC’s letter dated 21 November, urging for a response to Coinbase’s petition for regulatory clarity, filed back in July 2022.

Coinbase contends that only through a court order, specifically mandamus, can the SEC be compelled to address the lingering issue of delayed regulations surrounding cryptocurrencies. The exchange’s petition seeks rules governing the regulation of securities offered and traded through digital methods, emphasizing the need for a structured framework in a market marked by unpredictability.

The SEC’s recent enforcement action against Kraken, filed on 20 November, serves as a central argument for Coinbase’s call to action. The exchange suggests that the SEC’s lack of regulatory clarity, exemplified by the Kraken case, necessitates a court order to break the regulatory deadlock.

As the SEC approaches a decision on a Bitcoin-related exchange-traded fund (ETF) for US markets, the urgency for comprehensive regulations intensifies. Approval of such an ETF could be a pivotal moment for the mainstream adoption of cryptocurrencies, making the need for clear guidelines even more pressing.

Meanwhile, Coinbase’s CEO, Brian Armstrong, stands firm on the company’s decision to comply with US money transmitter licensing laws. In response to rival Binance’s legal entanglements, Armstrong defends Coinbase’s commitment to compliance, acknowledging the challenges and competitive disadvantages that come with such an approach. He emphasizes the importance of embracing regulatory requirements for the long-term sustainability of the company, criticizing the lack of clarity in US regulations that has driven users to unregulated exchanges like Binance.

Armstrong acknowledges the impact of compliance on Coinbase’s growth but asserts the correctness of their approach, rooted in a belief in the rule of law. Despite the SEC’s allegations against Coinbase, he clarifies that these are not related to violations of the Bank Secrecy Act or licensing issues for money transmitters. Notably, Armstrong points out that the lack of regulatory clarity in the United States has led to a significant portion of crypto transactions occurring outside the country.

The SEC’s recent charges against Kraken further complicate the regulatory landscape. The SEC alleges that Kraken operated as an unregistered exchange, broker, dealer, and clearing agency, raising concerns about the commingling of client funds with corporate funds. The agency asserts that a range of cryptocurrencies, including Cardano, Algorand, Cosmos, Filecoin, Flow, Internet Computer, Decentraland, Polygon, Near, OMG Network, and Solana, are considered securities.

In response, Kraken vehemently defends its position, expressing disappointment in the SEC’s regulatory approach, which it believes harms consumers, stifles innovation, and undermines US competitiveness globally. Kraken insists that congressional action is the most appropriate avenue to address the lack of regulatory clarity in the United States. This development follows the SEC’s earlier charges against Kraken related to its staking services, which the exchange settled with a $30 million payment.

As Coinbase takes a stand against the SEC and Kraken fights back, the cryptocurrency industry finds itself at a crucial juncture, where the outcome of these regulatory battles could shape the future of digital asset trading in the United States.