In a significant development, Coinbase, the prominent cryptocurrency exchange, has filed for an interlocutory appeal in federal court to challenge a crucial legal point at the center of its dispute with the U.S. Securities and Exchange Commission (SEC). The appeal seeks a higher court's review on whether a digital asset transaction without any obligation to the original issuer should be considered an investment contract regulated by the SEC.

By filing this appeal, Coinbase aims to address the legal impasse that has emerged within the crypto industry's battle with the SEC. The exchange filed for an interlocutory appeal, which focuses on a narrow point of legal disagreement, with the U.S. Court of Appeals for the Second Circuit. This appeal comes after a federal judge recently denied Coinbase's request to dismiss the SEC case against the company before trial.

At the core of Coinbase's appeal is the application of the so-called Howey test by the SEC to cryptocurrency assets, which the exchange argues has created ambiguity surrounding the definition of a security. Coinbase indicates that the divergent judicial outcomes and the division among members of Congress and regulatory agencies highlight the complexity of the subject matter.

Although interlocutory appeals are typically longshots, the potential acceptance of this appeal could bring the industry one step closer to a definitive resolution, possibly through a ruling by the U.S. Supreme Court. The outcome of this case has significant implications for the U.S. crypto sector.

The SEC contends that most digital assets qualify as securities and therefore fall under its jurisdiction, requiring proper registration. However, Coinbase and other industry players argue that once these assets are traded on secondary markets and become disconnected from their original issuers, they should no longer be subject to SEC regulation.

Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York recently ruled that the SEC had provided enough evidence to proceed with most of the case against Coinbase. To move forward, Coinbase's new appeal of one aspect of this decision would need to be accepted by Judge Failla and the Second Circuit. If the appeal is accepted, the rest of the case will continue in Failla's court as the regulator and the company head toward trial.

Coinbase's case is seen as a critical legal battle that could shape the future of the cryptocurrency industry in the United States. The SEC has experienced both victories, such as in the Terraform Labs case and an insider-trading case related to Coinbase, as well as losses, as seen in its case against Ripple.

The SEC has responded to Coinbase's appeal request by stating that any response will be made through public filings to the court. The outcome of this appeal and subsequent trial is eagerly anticipated as it could provide essential clarity on the classification and regulation of digital assets.

UPDATE: This news article was updated on April 13, 2024, at 00:20 UTC to provide additional details.

UPDATE: This news article was further updated on April 13, 2024, at 02:28 UTC to include the response from the SEC.

Please note that CoinDesk, the media outlet reporting this news, follows a strict set of editorial policies. CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated digital assets exchange, in November 2023. Both CoinDesk and the Bullish group have interests in various blockchain and digital asset businesses, including significant holdings of digital assets like bitcoin. CoinDesk operates independently with an editorial committee that safeguards journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.