by Emma Wozniak Associate Member, University of Cincinnati Law Review Vol. 93
I. Introduction
Cryptocurrencies have evolved from a niche concept to a global financial phenomenon.[1] In 2009, a pseudonymous creator, Satoshi Nakamoto released the oldest and most notable cryptocurrency, Bitcoin.[2] In just fifteen years, the crypto market has exploded, with nearly 25,000 different cryptocurrencies now in existence.[3] However, not all cryptocurrencies stand the test of time. From 2013 to 2025, over 12,000 cryptocurrencies became defunct due to failed initial coin offerings (“ICOs”), low trading volumes, or scams.[4] A key indicator of a struggling cryptocurrency is its removal from major exchanges like Coinbase.[5]
Coinbase Inc. (“Coinbase”), one of the most recognized cryptocurrency exchanges, has played a pivotal role in the crypto market since its launch in 2012.[6] By 2014, Coinbase reached one million users and remains the largest exchange by trading volume to date.[7] As of February 2025, Coinbase listed approximately 273 well-established and emerging cryptocurrencies for trading.[8] Coinbase’s dominance in the market, however, placed it under the scrutiny of regulators like the Securities and Exchange Commission (“SEC”).[9] In June 2023, the SEC sued Coinbase, alleging the company had illegally operated as an exchange, broker, and clearing agency while offering and selling unregistered securities.[10]
The lawsuit became a landmark case in the crypto industry, with its outcome expected to shape the future of digital asset regulation.[11] This article examines the implications of SEC v. Coinbase against the backdrop of the current crypto regulatory framework. Part II of this article will provide background on what cryptocurrencies are and how the SEC regulates cryptocurrencies and exchanges. Part III of this article will discuss the potential consequences of the case. Finally, Part IV will conclude with predictions on the future of cryptocurrency regulation in the United States.
II. Background
A. History of Bitcoin
In 2008, Satoshi Nakamoto published his white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” which introduced the world to a decentralized system for digital transactions that prevents fraud, enables the creation of new currency, and offers anonymity.[12] Nakamoto’s innovative system, described in the white paper, is called Blockchain, a technology that enables the existence of cryptocurrencies like Bitcoin.[13] Blockchain is a distributed ledger technology that allows monetary transactions without intermediaries such as banks or financial service providers.[14] Nakamoto designed blockchain technology to be decentralized, transparent, and immutable, ensuring all transactions are communally verified.[15]
Native tokens like Bitcoin (“BTC”) and Ether (“ETH”) are cryptocurrencies — digital assets, that serve as a medium of exchange within their respective blockchain networks.[16] Cryptocurrencies are created and stored on the blockchain and use cryptographic techniques to verify transactions.[17] Unlike traditional currencies, cryptocurrencies have no intrinsic value, no physical form, and cryptocurrency supply is determined by blockchain protocol.[18] A cryptocurrency has value because it can be used in place of a fiat currency.[19] However, major cryptocurrencies like Bitcoin, have a high exchange rate due to the investors and traders buying tokens with the hope to turn a profit.[20] An exchange rate is the value of one currency relative to another, determining the rate at which one currency can be exchanged for the other.[21] One BTC was previously worth less than $1, but as of March 13, 2025, the value of one BTC is worth more than $80,000.[22] The price of Bitcoin is incredibly volatile, but this volatility attracts some investors who hope the value continues to increase.[23]
Cryptocurrency quickly evolved from an alternative investment to a market valued in the hundreds of billions.[24] Cryptocurrency is decentralized, operating without bank or government participation, relying on peer-to-peer transactions.[25] Users store their assets in digital “wallets,” which can be software or hardware-based, allowing users to transact securely.[26]
Some wallets are hosted by third parties, such as online centralized crypto asset exchanges.[27] These platforms enable users to store assets on their accounts but require trust in the exchange’s security and integrity.[28] Previously, exchanges were targets of hackers and as a result of poor security measures, customers lost assets.[29] Unlike decentralized transactions, centralized exchanges act as intermediaries in transactions rather than allowing direct peer-to-peer trades.[30] While this structure requires a level of reliance on the exchange, it offers additional protection not available to users on decentralized platforms.[31] Namely, centralized exchanges are subject to oversight by the SEC, the Financial Industry Regulatory Authority, and other US regulatory agencies, offering a level of regulatory security to users.[32]
A popular centralized exchange is Coinbase, a secure online platform that enables its users to buy, sell, transfer, and store cryptocurrency.[33] Centralized exchanges provide a user-friendly entry point for beginner investors due to the regulatory oversight and guidance they offer.[34] However, while US regulatory bodies continue to enforce and develop rules for this space, crypto asset regulation remains at a crossroads.[35] Recent decisions, and those expected in the coming months, will shape the future of cryptocurrency in the United States.[36]
B. Regulation of Bitcoin
The emergence and sudden growth of cryptocurrency introduced the question of which regulatory body would handle the oversight of the technology and companies utilizing it and what that regulation would look like.[37] One regulatory agency to enter the fray was the SEC.[38] The SEC was created to enforce the Securities Act of 1933 and the Securities Exchange Act of 1934.[39] These acts were intended to create protections for investors and ensure fair securities markets.[40] In 2019, the SEC released a framework for analyzing when a digital asset is offered and sold as an investment contract and would therefore be considered a security subject to SEC jurisdiction.[41]
The terms “security” and “investment contract” were originally defined in SEC v. W.J. Howey Co., and clarified in subsequent case law.[42] Under Section 2(1) of the Securities Act of 1933, the U.S. Supreme Court found the term “security” to include “the commonly known documents traded for speculation or investment.”[43] Additionally, the Court stated “this definition also includes ‘securities’ of a more variable character, designated by such descriptive terms as ‘certificate of interest or participation in any profit-sharing agreement,’ ‘investment contract,’ and, ‘in general, any interest or instrument commonly known as a ‘security.’”[44] For purposes of the Securities Act of 1933, the definition of an investment contract was held to be “a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promotor or a third party.”[45]
The Howey test lays out four elements that must be met to prove that a digital asset is an investment contract.[46] These elements are (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profit, and (4) those profits being derived from the efforts of others.[47] While seemingly straightforward, the SEC has struggled to apply the Howey test to cryptocurrencies.[48] Howey was decided in 1946 and defined terms from the 1930s statutes.[49] In the early 1900s, it would have been highly unlikely to predict the invention of cryptocurrency or envision its complicated nature.[50] The result of applying historic precedent to modern technology has been inconsistent regulation.[51]
C. SEC v. Coinbase
For a crypto asset exchange like Coinbase, the SEC’s unclear regulation of cryptocurrency has led to significant frustration and court fees. Coinbase claims it operated diligently to follow the limited rules available to it.[52] Before Coinbase went public in April 2021, the SEC reviewed the company’s business model and S1 disclosures.[53] Additionally, in July 2022, Coinbase filed a Petition for Rulemaking with the SEC, which asked the SEC to develop rules for the cryptocurrency industry as it believed the current securities laws were incompatible with digital asset securities.[54] Over a year later, on December 15, 2023, the SEC denied Coinbase’s petition.[55] The SEC stated it disagreed with Coinbase because the current regulatory scheme was unclear, rejected the idea that it was the right for the suggested regulatory action, and noted that the pursuit of Coinbase’s proposed regulation would strain the SEC’s resources.
In June 2023, the SEC charged Coinbase for operating as an unregistered securities exchange, clearing agency, and broker, and additionally for the unregistered offer and sale of securities from its staking-as-a-service program.[56] The SEC’s complaint alleged that since 2019, Coinbase had made billions of dollars by facilitating transactions of crypto asset securities in violation of Sections 5 (a) and 5(c) of the Securities Act of 1933.[57] The court’s denial of Coinbase’s motion to dismiss, primarily focused on whether crypto asset transactions meet the prongs of the Howey test and are investment contracts fall under the statutory definition of a security.[58] The court found that all prongs of the Howey test were met in Coinbase’s case and allowed the SEC’s case to proceed.[59]
On January 21, 2025, Coinbase filed a petition for appeal in the U.S. Second Circuit Court of Appeals.[60] Coinbase stated in its appeal that the most pressing issue in modern securities law is the scope of the SEC’s authority to regulate secondary trades of crypto assets.[61] Notably, this appeal would have marked the first instance of a U.S. federal appellate court analyzing whether crypto asset transactions could qualify as investment contracts under the Howey test and, therefore, be subject to regulation under federal securities laws. [62]
Soon after Coinbase filed its petition for appeal, the SEC moved to dismiss its enforcement action.[63] This action marked a stark departure from previous SEC sentiment towards cryptocurrency enforcement.[64] The SEC stated it dismissed the action because the newly formed crypto task force would help develop the regulatory framework for crypto assets and the recommendations from the crypto task force would guide the SEC in future enforcement endeavors.[65] Additionally, Coinbase’s petition for rulemaking resurfaced when Coinbase petitioned the Third Circuit Court of Appeals to review the SEC’s denial.[66] On January 13, 2025, the court remanded the petition to the SEC, finding that the SEC’s order was insufficiently reasoned and “arbitrary and capricious.”[67]
III. Discussion
The rapid rise of cryptocurrencies from a niche concept to a global financial phenomenon raises significant regulatory challenges. Coinbase represents a crucial legal battle that may shape the future of cryptocurrency regulation in the United States.[68] At its core, the case addresses whether the SEC has the authority to regulate cryptocurrency as securities under existing legal frameworks.[69] The SEC dismissing the case against Coinbase represents a clear shift in it’s regulatory scheme and stance towards cryptocurrency.
The new presidential administration recently vocalized its support for cryptocurrency and blockchain technology.[70] Paul Atkins, a former SEC commissioner known for having a deregulatory stance, was nominated to serve as chairman of the agency.[71] The shift in the SEC’s stance, coupled with leadership changes, suggests a potential transformation in how cryptocurrency is regulated. The decision to drop the lawsuit against Coinbase, alongside the establishment of a crypto task force, indicates a departure from aggressive enforcement towards a more structured, comprehensive, and modern regulatory approach.
One of the key takeaways from Coinbase is the need for regulatory clarity. The court’s reliance on the Howey test, a framework established nearly a century ago, highlights the inadequacies of existing legal standards in addressing modern financial innovations.[72] The lack of clear guidelines has placed cryptocurrency exchanges in a precarious position, where these exchanges must navigate compliance obligations that remain largely undefined.
The SEC’s decision to withdraw its enforcement action does not mean that regulation is being abandoned. Instead, it suggests that regulatory agencies are acknowledging the need for a more modern and tailored approach. Additionally, by remanding Coinbase’s Petition for Rulemaking, the Third Circuit Court has signaled that agencies like the SEC must provide reasoned and well-defined guidance rather than continuing on the path of relying solely on enforcement actions.[73]
Regulatory agencies can only provide so much guidance. To resolve regulatory uncertainty, Congress must also step in and set a clear course for the cryptocurrency industry. Beyond the legislature, the SEC’s evolving stance may also encourage further collaboration between regulators and industry participants, paving the way for regulation that balances consumer protection with innovation. Ultimately, the outcome of Coinbase and the subsequent policy shifts has set the stage for a new era of cryptocurrency regulation in the United States. Whether this leads to more flexible and innovative conditions or additional regulatory hurdles remains to be seen. However, Coinbase has played a pivotal role in shaping the discourse around digital asset regulation, demonstrating that the evolving cryptocurrency industry requires legal frameworks that are both adaptable and progressive.
IV. Conclusion
The legal battle between the SEC and Coinbase exemplifies the broader struggle to define regulatory boundaries in the cryptocurrency industry. As digital assets continue to gain mainstream adoption, regulatory clarity is essential for fostering innovation while maintaining market integrity. Ultimately, the resolution of Coinbase highlights the pressing need for lawmakers and regulators to establish a clear and consistent framework that supports both technological advancement and investor protection in the digital currency economy.
[1] Andy Rosen, Cryptocurrency Basics: Pros, Cons and How it Works, Nerdwallet (Feb. 26, 2025), https://www.nerdwallet.com/article/investing/cryptocurrency.
[2] A Cryptocurrency Timeline: From eCash to Ethereum, Vincent (2025), https://www.withvincent.com/research/cryptocurrency-timeline (last visited Apr. 10, 2025).
[3] How Many Cryptocurrencies Are There in February 2025?, Tangem (Mar. 4, 2025), https://tangem.com/en/blog/post/how-many-cryptocurrencies-exist/.
[4] Id.
[5] Id.
[6] A Cryptocurrency Timeline: From eCash to Ethereum, supra, note 2.
[7] Id.
[8] How Many Cryptocurrencies Are There in February 2025?, supra, note 3.
[9] Bob Haegele, What is Coinbase and How Does it Work?, Bankrate (June 27, 2024), https://www.bankrate.com/investing/what-is-coinbase/.
[10] SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency, SEC (June 6, 2023), https://www.sec.gov/newsroom/press-releases/2023-102.
[11] Chun-Kit Ng, The Future of Cryptocurrency Regulation: Lessons from SEC v. Coinbase, University of Oxford (June 13, 2024), https://blogs.law.ox.ac.uk/oblb/blog-post/2024/06/future-cryptocurrency-regulation-lessons-sec-v-coinbase#:~:text=The%20Securities%20and%20Exchange%20Commission’s,&%20Exch.
[12] Stabile, et. al., Digital Assets and Blockchain Technology US Law and Regulation 1-2 (2020).
[13] Scott Likens, Making Sense of Bitcoin, Cryptocurrency, and Blockchain, PricewaterhouseCoopers (2025), https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html.
[14] Fintech: Financial Technology Research Guide, Libr. of Cong. (2024), https://guides.loc.gov/fintech/21st-century/cryptocurrency-blockchain#:~:text=Perhaps%20in%20response%20to%20the,for%20distributed%20ledgers%20called%20blockchains.
[15] Id.
[16] Likens, supra note 13.
[17] Id.
[18] Id.
[19] John P. Kelleher, Why Do Bitcoins Have Value?, Investopedia (Apr. 10, 2024), https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp.
[20] Id.
[21] Exchange Rate, Corp. Fin. Inst. (2025), https://corporatefinanceinstitute.com/resources/economics/exchange-rate/#:~:text=An%20exchange%20rate%20is%20the,trade%20and%20capital%20flow%20dynamics.
[22] Kelleher, supra note 19; 1 BTC to USD: Convert (BTC) To US Dollars (USD), Revolut (2025), https://www.revolut.com/crypto/price/btc/usd/?amount-to=1 (last visited Apr. 15, 2025).
[23] Kelleher, supra note 19.
[24] Haegele, supra note 9.
[25] Stabile, supra note 12 at 16.
[26] Id.
[27] Id. at 18-19.
[28] Id. at 19.
[29] Id.
[30] Nathan Reiff, What Are Centralized Cryptocurrency Exchanges?, Investopedia (Aug. 30, 2024), https://www.investopedia.com/tech/what-are-centralized-cryptocurrency-exchanges/#:~:text=Yes.,regulatory%20agencies%20in%20the%20U.S.
[31] Id.
[32] Id.
[33] What is Coinbase, Coinbase, https://help.coinbase.com/en/coinbase/getting-started/crypto-education/what-is-coinbase (last visited Apr. 15, 2025).
[34] Mallika Mitra, Coinbase for Beginners: A Complete Guide to Buying and Selling Cryptocurrency on a Popular Exchange, Money (Mar. 27, 2023), https://money.com/how-to-use-coinbase-beginners/.
[35] Olivia Farrar, Crypto – To Regulate or Not?, Harvard Mag. (March 3, 2025), https://www.harvardmagazine.com/2025/03/harvard-director-crypto-lab-future-blockchain.
[36] Id.
[37] Danyang Li, Does the SEC Have Authority Under Howey to Regulate Cryptocurrencies?, The Univ. of Chicago Bus. L. Rev., https://businesslawreview.uchicago.edu/print-archive/does-sec-have-authority-under-howey-regulate-cryptocurrencies.
[38] Id.
[39] Ng, supra note 11.
[40] Id.
[41] Stabile, supra note 12 at 166.
[42] SEC v. W.J. Howey Co., 328 U.S. 293 (1946); Sean Gellis, A Timeline of Cryptocurrency Regulation in America (Part 1): Have Regulators Been Clear?, Ascend (Jan. 27, 2023), https://ascend.thentia.com/technology/cryptocurrency-regulation/.
[43] Stabile, supra note 12 at 131; W.J. Howey Co., 328 U.S. at 293.
[44] W.J. Howey Co., 328 U.S. at 293.
[45] Li, supra note 37.
[46] W.J. Howey Co., 328 U.S. at 293.
[47] Id.
[48] Li, supra note 37.
[49] Id.
[50] Id.
[51] Id.
[52] Stephen T. Gannon et al., 3rd Circuit Rules for Coinbase – Reasoned Analysis and Due Process Do Matter, Davis Wright Tremaine LLP (Jan. 28, 2025), https://www.dwt.com/blogs/financial-services-law-advisor/2025/01/3rd-circuit-coinbase-crypto-ruling#:~:text=Those%20efforts%20were%20unsuccessful%2C%20and,to%20act%20on%20its%20request..
[53] Paul Grewal, Righting a Major Wrong, Coinbase (Feb. 21, 2025), https://www.coinbase.com/blog/righting-a-major-wrong.
[54] Gannon, supra note 52; Jonathan S. Starego & Christopher M. Vaughan, Coinbase, Inc. v. SEC, Bressler Amery & Ross (Feb. 7, 2025), https://www.bressler.com/news-coinbase-inc-v-SEC#:~:text=Coinbase%20petitioned%20the%20SEC%20to,digital%20assets%20on%20a%20decentralized.
[55] Gary Gensler, Statement on the Denial of a Rulemaking Petition Submitted on Behalf of Coinbase Global, Inc., SEC (Dec. 15, 2023), https://www.sec.gov/newsroom/speeches-statements/gensler-coinbase-petition-121523.
[56] SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency, supra note 10.
[57] Id.; Robert A. Schwinger, SEC’s Crypto Enforcement Authority Sustained Over Coinbase’s Vigorous Challenges, Norton Rose Fulbright (Mar. 2024), https://www.nortonrosefulbright.com/es-es/knowledge/publications/9da04ce0/secs-crypto-enforcement-authority-sustained-over-coinbases-vigorous-challenges.
[58] Id.
[59] Id.; Lawrence E. Ritchie & Alexander Cobb, Recent Developments in the U.S. SEC’s Proceedings Against Major Crypto Players Signals Pro-Industry Policy Shift, Osler (Feb. 26, 2025), https://www.osler.com/en/insights/blogs/risk/recent-developments-in-the-u-s-secs-proceedings-against-major-crypto-players-signals-pro-industry-policy-shift/.
[60] Ritchie & Cobb, supra note 59.
[61] Id.
[62] Id.
[63] Caroline A. Crenshaw, Crypto 2.0: Regulatory Whiplash, SEC (Feb. 27, 2025), https://www.sec.gov/newsroom/speeches-statements/crenshaw-remarks-crypto-2-0-regulatory-whiplash-022725.
[64] Id.
[65] Id.
[66] Id.
[67] Id.
[68] Sec. and Exch. Comm’n v. Coinbase, Inc., No. 1:23-cv-04738 (S.D.N.Y. filed June 6, 2023).
[69] Schwinger, supra note 57.
[70] Denis Zinoviev, What Trump’s Presidency Will Mean for Bitcoin, VanEck (Jan. 17, 2025), https://www.vaneck.com/us/en/blogs/digital-assets/trump-and-bitcoin/.
[71] Id.; Scott H. Kimpel, Exchanging the SEC: Previewing the Next Four Years, The Nat’l L. Rev. (Mar. 3, 2025), https://natlawreview.com/article/exchanging-sec-previewing-next-four-years.
[72] The Howey Test: Is Your Crypto Token a Security?, Gordon Law, https://gordonlaw.com/learn/howey-test-is-your-token-security/#:~:text=The%20%E2%80%9CHowey%20Test%E2%80%9D%20is%20the,the%20SEC%2C%20which%20regulates%20securities (last visited Apr. 15, 2025).
[73] Coinbase, Inc. v. Sec. and Exch. Comm’n, 126 F.4th 175 (3d Cir. 2025).
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