The US Supreme Court is set to hear arguments from two lawsuits against Coinbase Global Inc. brought by disgruntled customers. The cases are the first crypto-related ones to come before the court and are seen as harbingers of future litigation that could define the industry. The legal disputes come as the cryptocurrency market grows, with increasing bankruptcies and frauds leading to a growing list of pressing legal questions.
One of the critical issues is the Securities and Exchange Commission’s (SEC) efforts to classify crypto-assets as securities, putting them under federal regulatory oversight. While the SEC has won some early legal battles, it could face more skepticism from the Supreme Court, which has limited the power of regulatory agencies in the past. Ripple Labs Inc. awaits a key ruling from a federal judge in New York after the SEC accused it of selling unregistered tokens without adequate disclosure.
Another crypto-related issue that could come before the court is the SEC’s rejection of a proposed Bitcoin exchange-traded fund, which a federal appeals court in Washington is expected to rule on in the coming months. Grayscale Investments LLC, seeking to convert its $15bn Bitcoin trust, has said it will appeal to the Supreme Court if necessary.
The case before the court on Tuesday is a procedural dispute over arbitration rather than a crypto-specific matter. It centers on whether a lawsuit can proceed in federal court while a company presses an appeal that would send the case to arbitration. Coinbase argues that trial court proceedings should automatically stop when a party files an appeal seeking to compel arbitration.
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Arbitration agreements are common in the crypto industry, as they are with other retail businesses that have large customer bases. However, courts will eventually have to decide how federal tax, money laundering, and antitrust laws apply to the industry. Judges may also have to work through complex jurisdictional issues stemming from the decentralized nature of blockchains.
Gerard Comizio, associate director of the business law program at American University’s Washington College of Law, said the crypto business was similar to the broader financial services industry 50 years ago. “If you asked me back in 1970, and I knew what I know now, I’d say, ‘Yeah, new and emerging large industry, and it’s going to permeate the courts as these issues get flushed out,’” he said.
The Supreme Court’s ruling in the Coinbase case is expected to clarify the arbitration issue, but the more significant questions surrounding regulating the crypto industry remain to be answered.