The SEC is dropping its lawsuit against Coinbase, a crypto firm it said was an unregistered securities exchange.
The development marks a big shift in enforcement priorities, experts told Business Insider.
"This is not about how the litigation was going, this is about the Trump administration not wanting to go after crypto."
The Securities and Exchange Commission is ending a nearly two-year case against Coinbase, a development that's likely a harbinger of the coming era of lighter regulation of digital assets under the Trump Administration.
Coinbase said Friday that the SEC would abandon the Biden-era lawsuit, which alleged that the largest US crypto exchange was an unregistered securities exchange, broker, and clearing agency.
Shares of the crypto exchange rallied on the news before giving up gains. Coinbase CEO Brian Armstrong said it marked a "huge day" for the company, adding that the SEC's case was "bogus."
Other industry insiders cheered the news.
"It never made sense for the SEC to target one of the best run and most compliant players in the industry," Eli Cohen, General Counsel at tokenization platform Centrifuge, said. "This quick dismissal with $0 in fines is another indicator of just how egregious and unusual the Gensler approach to crypto really was."
"This action is very welcome as it helps dispel the cloud of legal and regulatory uncertainty that has been hanging over the industry's head for years," Chrissy Hill, chief legal officer of Parity Technologies, said.
An SEC enforcement crackdown under former chair Gary Gensler saw similar cases pursued against other crypto firms, including US exchange Kraken, and Binance, the world's largest crypto exchange.
"There's a common understanding in the industry that there is a wholesale re-examination of enforcement priorities and open investigations and lawsuits, particularly as they impact the digital asset industry," said Alan Konevsky, executive vice president and chief legal and corporate affairs officer at tZERO, said.
He added that it's not unreasonable to expect other pending SEC litigation to be dropped.
According to Zack Shapiro, head of policy at the Bitcoin Policy Institute, the Coinbase decision bodes well for other exchanges that have been in the regulator's crosshairs in recent years. However, the legal theory behind the SEC's original complaint remains unchanged.
"Right now, for token issuers, the rules are all the same, and this is definitely more of a like vibe shift, or enforcement priorities shift from the SEC."
A key litmus test will be the agency's approach to its ongoing case against Ripple, which issues the XRP altcoin. The SEC's lawsuit claims XRP is an unregistered security, and many have seen the case as the biggest test of the SEC's authority over the crypto market.
"If they drop that appeal and they settle with Ripple, that would be another sort of different step, because then they're withdrawing specific theories they have that tokens are securities," Shapiro said.
Amy Lynch, founder of FrontLine Compliance, expects that most cases related to "unregistered exchanges" will be dropped, though those related to crypto fraud should remain ongoing.
As its priorities shift, Lynch said she expects the SEC will turn its attention toward creating a regulatory framework. This month, Commissioner Heather Pierce said that would be the goal of the SEC's newly created Crypto Task Force.
If that pans out, Lynch suspects that the effort could end up creating definitions for when digital assets act as securities and when they are commodities, which would dictate which agency is responsible for oversight.
"And I think that will be really the determining factor as to how regulation proceeds," Lynch told BI.
To Shapiro, Friday's reversal wasn't because the SEC felt it was losing. Instead, the decision to drop the case without a fine signals a big shift in enforcement priorities, he said.
"Coinbase has been litigating this for a long time. They would have happily paid a huge fine in order to make this go away. This is not about how the litigation was going, this is about the Trump administration not wanting to go after crypto," he told Business Insider.
Other sources who spoke with BI were unsurprised by the decision. President Donald Trump, once a crypto-skeptic, made waves during the election by aligning himself closely with the industry.
Even ahead of his inauguration, he had nominated crypto-friendly policymakers, released his own memecoin, and created a working group to oversee regulatory changes.
Meanwhile, a stream of crypto donations aided the shift in sentiment among policymakers. Coinbase was a major political donor in the 2024 campaign, pouring millions into the Fairshake crypto PAC. The company later contributed to the president's inauguration fund and was among the sponsors of the "Crypto Ball" days before Trump was sworn in.
While the industry broadly appeared encouraged by Friday's announcement, at least one analyst said there's a risk the regulatory pendulum will swing too far the other way.
"There will be far less enforcement of crypto scams, digital gambling activities and technical/bureaucratic and substantive offerings of financial products without the proper licenses and regulatory oversight in areas that are gray or unsettled," said Terrence Yang, Swan Strategic Advisor at Swan Bitcoin.
