The SEC-Coinbase (NASDAQ:COIN) Saga Gets Worse

The dispute between the Securities and Exchange Commission (SEC) and crypto exchange Coinbase Global (NASDAQ:COIN) is getting worse. The SEC has urged an appeals court to reject Coinbase’s petition asking for additional clarity on crypto regulations.  

The SEC said that Coinbase was expecting a response in less than a year of its petition, while the regulator body has previously taken five to 10 years to respond to petitions in other cases. Last month, Coinbase filed a petition urging a federal judge to compel the SEC to respond to its July 2022 petition, which asked the SEC to clarify and issue clear rules and regulations pertaining to the crypto sector.

In response, the SEC’s lawyers requested the court to deny Coinbase’s petition, saying, “Coinbase’s preference for faster or different regulatory action by the commission does not entitle it to extraordinary relief from this court.” The lawyers also said that Coinbase’s claim that the Commission has “secretly” decided to deny the company’s petition but refuses to admit it to avoid judicial review is baseless.

The lawyers also explained that regulatory agencies often enforce existing rules “while considering further amendments to regulatory requirements.” SEC Chair Gary Gensler has frequently argued that most digital assets are securities for which existing rules are clear enough, but crypto firms refuse to adhere to them.

Coinbase Reacts

Meanwhile, in response to the SEC’s move, Paul Grewal, Coinbase’s chief legal officer, tweeted, “Today the SEC responded to Coinbase’s petition for a writ of mandamus — asking the court to require the SEC to respond just yes or no to whether it will undertake rulemaking for our industry. The SEC’s answer?   A resounding maybe.”

Grewal believes that the SEC’s response reinforces Coinbase’s “longstanding” concern that the crypto industry has no clarity on what the SEC may consider to be within or outside its jurisdiction and that the regulatory body might continue to change its mind along the way. Coinbase intends to reply formally next week.

Is Coinbase a Buy, Hold, or Sell?

On Monday, Berenberg analyst Mark Palmer initiated coverage of Coinbase with a Hold rating and a price target of $55. The analyst feels that Coinbase has positioned itself to outlast the crypto winter, as reflected in its upbeat Q1 performance.

That said, Palmer believes that investors should focus on whether the company would have the “ability to successfully pivot its business model and geographic focus” if its U.S. business gets hit by an SEC enforcement action, which Palmer expects to occur soon. The SEC sent Coinbase a Wells Notice in March, indicating that it plans to bring enforcement actions against the exchange.

In the current scenario, Palmer considers MicroStrategy (MSTR) to be a better pick due to its focus on Bitcoin (BTC-USD), which the SEC classifies as a commodity.

Wall Street’s Hold consensus rating on Coinbase is based on eight Buys, nine Holds, and seven Sells. Following nearly 64% rally in COIN shares, the average price target of $60.38 implies 4.3% upside.