SEC Poised to Drop Coinbase Lawsuit

What happened

The crypto exchange Coinbase Global Inc announced on 21 February that the SEC is poised to dismiss its lawsuit against it. The regulator accused the exchange of operating as an unregistered securities exchange. This would represent the end of a legal saga that started in 2023 in the aftermath of the FTX debacle. Following the SEC’s failure to properly assess the risks associated with FTX, crypto firms like Coinbase became targets of increased scrutiny.

While the formal vote by the SEC Commissioners is still pending (it should happen this week), the current Republican majority within the Commission suggests a favorable outcome for Coinbase. This development comes as no surprise given the broader regulatory shift under the Trump administration, which has vowed to support the U.S. crypto industry. Coinbase CEO Brian Armstrong announced on X that the expected dismissal will not result in any settlement, fines, or operational changes.

This marks a clear win for Coinbase and the broader crypto industry, which has long opposed the SEC’s "regulation-by-enforcement" approach.

Impact on our Investment Case

A Shift in Regulatory Direction

The expected dismissal of the Coinbase case reinforces the view that the new administration is pivoting away from the aggressive enforcement actions of the previous SEC leadership. This signals the end of a regulatory era where compliance was dictated through legal action rather than clear rule-making.

Other firms that have been targeted by the SEC, may also benefit from similar regulatory reversals. Notably, on the same day of the Coinbase announcement, the SEC also dropped its investigation of OpenSea. The leading NFT platform was also accused of operating an unregistered securities exchange, which would have implied that all NFTs were securities. And today, the SEC also announced it was dropping its investigation into Robinhood's crypto business.

Coinbase, as the leading retail crypto exchange in the U.S., stands to gain significantly from this policy change. Removing the legal uncertainty strengthens its position as a dominant exchange and restores confidence in the broader crypto ecosystem. The case’s dismissal not only removes a major overhang on the company but also indicates that crypto firms operating in the U.S. may face a friendlier regulatory environment moving forward. Eventually, a clearer regulatory framework should help new players (like banks) propose services on digital assets, with the support of firms like Coinbase acting as partners to provide the crypto infrastructure and know-how. 

Changes at the SEC and the Path Forward

This dismissal is just one piece of the broader regulatory transformation underway. The resignation of former SEC Chair Gary Gensler was the first step. His likely replacement, Paul Atkins, has a track record of supporting crypto-friendly policies, though his confirmation by the Senate is still pending. Meanwhile, the SEC is now part of a newly formed digital assets working group, created by the Trump administration in the first week of its new term. This group, which also includes representatives from the CFTC and Treasury, is expected to provide regulatory and legislative recommendations.

Ultimately, the key takeaway is that Congress, not the SEC, will need to establish a clear regulatory framework for digital assets. While the expected dismissal of the Coinbase case is a positive milestone, true long-term regulatory clarity will require legislative action. This could materialize in the next 18 months based on Trump's Executive Order that required for legislative proposals by the end of July 2025. Until then, the crypto industry is likely to benefit from a more accommodating SEC stance but will remain in a transitional period.

Our Takeaway

Once approved, the Coinbase case dismissal will be a defining moment based on concrete actions and not only words: one that signals a new chapter for crypto in the U.S. This is yet another confirmation of the sweeping changes in U.S. crypto regulation under the Trump administration.

Despite the recent volatility for blockchain-related stocks, we remain constructive on the sector, particularly crypto exchanges. They are poised to benefit the most from reduced regulatory pressure and clear standards for the ecosystem as the bridging partners with traditional finance. We have recently increased our exposure to exchanges while reducing our position in certain Bitcoin miners that are pivoting toward AI infrastructure. Following the DeepSeek release and more efficient AI models, we remain cautious about the race to megawatts of computing power.

While short-term regulatory relief is encouraging, the long-term trajectory will depend on forthcoming legislative initiatives. Investors should watch for further SEC policy changes, Atkins' confirmation process, and any proposals from the newly formed digital assets working group. Once the current memecoin frenzy subsides, we expect the ecosystem to consolidate around fundamental innovations—accelerating stablecoin adoption, real-world asset tokenization, and sovereign Bitcoin reserves.