The message was clear when Coinbase was sued by the Securities and Exchange Commission in June 2023. There was no warning from the agency. It was making a line. The lawsuit essentially claimed that Coinbase had been operating an illicit business in plain sight for years, accusing the biggest cryptocurrency exchange in the United States of acting as an unregistered securities exchange, broker, and clearing agency. On the day the case was filed, COIN shares fell by about 12%. No one was celebrating within the company.
One of the most peculiar legal tales in recent financial history ensued. Coinbase made the decision to fight. Not compromise, not discreetly reorganize, not compromise. Engage in combat. Chief Legal Officer Paul Grewal and CEO Brian Armstrong publicly retaliated, claiming that cryptocurrency tokens merely do not fit the Howey Test’s legal definition of securities. At the time, most observers thought it was a risky move.
A well-known legal framework served as the foundation for the SEC’s main argument. According to the agency, tokens like SOL, ADA, and MATIC represented investments in a shared venture with the hope of making money—the traditional Howey definition. If that claim was true, Coinbase’s whole business strategy might be unlawful. Prior to filing, the agency had already sent a Wells notice indicating the impending enforcement. It was truly unexpected that Coinbase chose to accept that setback and carry on.
Looking back, it seems like the regulatory environment of 2023 was based on presumptions that did not hold up over time. Under Gary Gensler, the SEC took an aggressive enforcement-first stance toward cryptocurrency, bringing legal action against several exchanges and maintaining that current securities law was more than sufficient to regulate digital assets. This was directly contested by Coinbase. The company had requested in a different but related petition filed as early as 2022 that the SEC merely define in writing when a digital asset qualifies as a security and establish a regulatory framework that cryptocurrency companies could truly adhere to.
In December 2023, the SEC rejected that request. The following September, Coinbase retaliated once more in a Philadelphia federal appeals court, where lawyer Eugene Scalia claimed the agency had been “arbitrary and capricious” in declining to address the issue. In response, the agency’s attorney stated that Coinbase had no right to insist that the law be changed to accommodate its business model. Both sides were asked pointed questions by the three judges. Everyone left the hearing unsure, and no one emerged victorious.
The story’s eventual resolution—or lack thereof, depending on your point of view—is what makes it noteworthy. Coinbase became the first crypto-native company to be added to the S&P 500 by May 2025. The lawsuit brought by the SEC was dismissed. No fines. No operational adjustments are necessary. An estimated $50 million in legal expenses are avoided annually. The same index that tracked trillions of dollars in American retirement savings now included the company that regulators had essentially called a law-breaking enterprise.
It’s still unclear if this result reflects a true change in Washington’s perspective on cryptocurrency or if it was just the outcome of a change in regulatory leadership and administration. Scott Bessent’s demand for quicker, more precise regulations indicated a shift in the direction of a more organized system. Coinbase assisted in mediating a bipartisan crypto legislation agreement that is now closer to Senate consideration. Though it’s difficult to gauge how much, the ground appears to be shifting.
It is difficult to ignore how much Coinbase’s survival depended on a single choice—not to blink—when you watch all of this take place over the course of three years. Other cryptocurrency businesses either quietly vanished, restructured, or settled. Coinbase persisted in the conflict long enough for it to evolve. Although it isn’t exactly the same as winning on the basis of merit, persistence and timing have always been important in Washington.
