North America’s state securities regulators, in response to crypto exchange Coinbase’s defense against the SEC, have taken a firm stance. They argue that digital assets should not be deemed “exceptional” in any way, and the actions taken against Coinbase should not be viewed as “unprecedented or extraordinary.” This stance is asserted by an association comprised of North American securities regulators.

In a legal filing dated October 10, submitted in the United States District Court for the Southern District of New York in support of the U.S. Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA) maintains that digital assets should not be granted any unique privileges when it comes to the application of securities laws.

In June, the SEC filed a lawsuit against Coinbase, alleging that the publicly-traded crypto exchange had violated federal securities laws. In response, Coinbase counter-argued that the digital assets and services it provided did not meet the criteria for securities and that the SEC was overreaching.

Nonetheless, NASAA’s General Counsel, Vincente Martinez, contends that the SEC’s position is neither “unprecedented nor extraordinary.” He asserts, “The SEC’s theory in this case aligns with the agency’s long-standing public stance and falls well within the confines of established legal norms.”

NASAA argues that the SEC is not required to obtain explicit congressional authorization before applying established laws to digital assets.

The Crucial Howey Test: A pivotal aspect of this legal battle hinges on the judge’s interpretation of the Howey test, which is used to determine what qualifies as an investment contract. Coinbase argues that digital assets do not meet all the criteria outlined in the test.

Martinez argues that the Howey test was intentionally designed to be adaptable enough to encompass all types of technological advancements in the securities markets, including securities bought and sold on blockchains—a perspective previously endorsed by the SEC.

“The Court should reject Coinbase’s attempt to narrow and misapply the established legal framework in order to evade the same regulatory obligations as all other participants in the nation’s securities markets,” Martinez asserts, adding, “The Court should refrain from treating digital assets as something extraordinary.”

Downplaying the Impact of Crypto: Martinez also challenges Coinbase’s assertion involving the “major questions doctrine,” which implies that executive agencies such as the SEC require congressional approval for issues of major political or economic significance.

“Coinbase dubiously portrays the ‘digital asset industry’ as a ‘significant portion of the American economy,’” Martinez contends.

Nonetheless, Martinez believes that digital assets cannot be reasonably regarded as a significant component of the American economy, given their lack of practical economic use cases and widespread adoption, except for speculative purposes.

“Digital assets, as a class of assets, lack economic utility,” he notes, further stating, “Coinbase exaggerates both the size and significance of this ‘industry,’ particularly in terms of the portion overseen by securities regulators.”

In a joint effort with the SEC, NASAA urges the judge to reject Coinbase’s motion to dismiss the SEC lawsuit.