The legal battles are “an existential issue for crypto,” said Hilary Allen, a professor at American University who specializes in financial regulation.
The court fights intensified over the last 18 months, as the Securities and Exchange Commission brought enforcement lawsuits claiming that crypto companies were operating as unregulated securities businesses. In response, the industry argued that laws governing Wall Street trading shouldn’t apply to digital currencies. Both sides scored early court victories that left the matter unsettled.
But this month, federal judges held hearings in two cases that legal experts expect to be more decisive: the S.E.C.’s lawsuits against the crypto exchanges Coinbase and Binance, which explore the core issues in the broader legal battle. Preliminary rulings in those suits are expected in the coming weeks, setting the stage for litigation that could ultimately reach the Supreme Court.
“We built our legal strategy around” a possible Supreme Court showdown, said Paul Grewal, Coinbase’s chief legal officer. “These are issues that have potential implications for huge swaths of the economy.”
How the courts rule could determine whether the crypto industry can burrow deeper into the American financial system. If the S.E.C. prevails, crypto supporters say, it will stifle the growth of a new and dynamic technology, pushing start-ups to move offshore. The government has countered that robust oversight is necessary to end the rampant fraud that cost investors billions of dollars when the crypto market imploded in 2022.
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