Coinbase, the largest cryptocurrency exchange in the United States, has been granted a rare legal opportunity to challenge claims made by the Securities and Exchange Commission. 

Judge Katherine Polk Failla of the Southern District of New York approved Coinbase’s request for an interlocutory appeal, temporarily pausing the ongoing court case.

An interlocutory appeal allows a party to challenge a specific legal question before the full case is resolved. In this instance, Coinbase will ask the Second Circuit Court of Appeals to determine whether the SEC’s allegations against it are valid under current securities laws.

Is Coinbase unregistered?

The SEC claims Coinbase operated as an unregistered exchange and broker-dealer, meaning it allegedly facilitated trades and other financial services without securing the required regulatory approvals.

The regulator also accused Coinbase of selling unregistered securities through its staking program, in which users earn rewards by locking up cryptocurrency to support network operations.

The appeal will address whether digital assets traded on Coinbase qualify as investment contracts. This term originates from the Howey test, a legal standard used to determine what counts as a security. A ruling from the appellate court could provide much-needed clarity on how securities laws apply to cryptocurrencies, a topic that remains unsettled.

Fox Business reporter Eleanor Terrett noted the appeal’s rarity, calling it a “big win” in the legal battle. The decision could impact how regulators and courts treat cryptocurrency platforms in the future.

This development temporarily halts the SEC’s case against Coinbase until the appellate court delivers its ruling, a decision that could significantly shape the future of cryptocurrency regulation in the United States.