Coinbase and the US Securities and Exchange Commission (SEC) had their first face-off today (Thursday) following the securities regulator’s charges against the cryptocurrency exchange in early June. During the pre-motion hearing, both parties argued about what passes as a security and crypto staking. The debate also touched on Coinbase’s registration by the SEC in 2021 and the application of the ‘major questions doctrine’ to the case.

SEC vs. Coinbase

Last month, the SEC in its complaint against Coinbase claimed that the crypto exchange operates illegally as an exchange, broker and clearing agency. On Thursday, Judge Katherine Polka of the US District Court for the Southern District of New York questioned both parties on claims made by the SEC in its complaint and those by Coinbase in its 177-page-long response.

Due to the SEC’s approval of Coinbase’s application that went public in 2021, the crypto exchange noted that several of the tokens that the securities watchdog flagged as unregistered securities in its complaint were mentioned in its initial public offering (IPO) filings. However, the SEC responded that permitting the IPO does not translate to an endorsement of the exchange’s activities.

Previously, Coinbase argued that the securities regulator lacked the legal power to regulate its business. It also cited the ‘major questions doctrine’, suggesting that the SEC overstepped its legal authority in trying to regulate cryptocurrencies listed on its platform as securities.

On Thursday, Coinbase repeated the argument, asking the court to dismiss the case. Finance Magnates reported that the SEC previously faulted this proposition, saying that Coinbase ‘misapprehends the purpose and reach' of the doctrine.

The first court hearing on Thursday is an important one for the cryptocurrency industry. The SEC for years has claimed that certain cryptocurrencies are unregistered securities. The outcome of the case against Coinbase, the largest cryptocurrency exchange in the United States, could have great implications as to how the digital asset industry in the world’s largest economy is regulated and structured.

Coinbase Cites Biden Student Loan Decision

Meanwhile, a US Supreme Court recently knocked out a proposal by President Joe Biden and the US Department of Education to cancel billions of dollars in student loans, thereby supporting the argument that the President overstepped his authority. On Wednesday, Coinbase’s lawyers in a court filing contended that the case was similar to the SEC’s assertion of power over the exchange’s business.

On the other hand, Finance Magnates reported that SEC previously contended that Coinbase knew the US securities laws could apply to its business activities but opted to risk running afoul of the law ‘in the name of growing its business’.

“This case, by contrast, involves the SEC’s exercise of its longstanding authority to enforce statutory requirements,” the regulator said. “In 1934, Congress authorized the SEC to enforce the federal securities laws through civil law enforcement actions.”