Coinbase Faces Legal Hurdles While Quietly Becoming a ‘Banking Giant’

Judge Rules Against Coinbase in Investor Lawsuit

Coinbase is now required to face an investor lawsuit in New York after U.S. District Judge Paul Engelmayer rejected its argument that it is not a "statutory seller" under federal law. 

The ruling, issued on February 7, 2025, stems from a case filed by Louis Oberlander, Henry Rodriguez, and Christopher Underwood in March 2022, alleging that Coinbase sold unregistered securities. The lawsuit, which was initially dismissed in February 2023, was revived by the Circuit Court of Appeals and focuses on the sale of 79 cryptocurrencies that plaintiffs claim were offered illegally.

The court determined that Coinbase operates as a direct seller rather than a neutral platform, emphasizing that users transact solely with the exchange itself. Coinbase argued that its bid-ask system is blind, automatically matching buyers and sellers without direct involvement. 

However, the court dismissed this claim, siding with the plaintiffs. Following the decision, Coinbase released a statement reiterating its stance that it does not sell securities, highlighting that the ruling had "narrowed the scope of discovery" in the case while expressing confidence in defending itself in district court.

The lawsuit is one of several legal battles Coinbase is currently facing, including an ongoing case brought by the U.S. Securities and Exchange Commission (SEC) in June 2023. The SEC alleges that Coinbase operates as an unregistered securities exchange, broker, and clearing agency. In response, Coinbase has argued that cryptocurrency transactions are asset sales rather than securities trades. 

A key point of contention in the SEC case is whether an investment contract requires a formal agreement, with Coinbase maintaining that the absence of explicit contracts weakens the SEC’s claims. In January 2024, the exchange urged a U.S. appeals court to rule that crypto transactions should not be classified as securities.

Coinbase has also taken a more aggressive stance against regulators, filing lawsuits against both the SEC and the Federal Deposit Insurance Corporation (FDIC). The exchange accuses these agencies of attempting to isolate crypto firms from essential banking services and of failing to comply with Freedom of Information Act (FOIA) requests. The lawsuit claims that regulatory bodies are unfairly restricting access to traditional financial infrastructure, hampering the industry's growth.

Despite mounting legal challenges, Coinbase has quietly established itself as a financial powerhouse, surpassing most U.S. banks with approximately $420 billion in assets under custody. CEO Brian Armstrong has positioned the exchange as a bridge between traditional finance and cryptocurrency, envisioning a future where the two systems merge. The company has expanded beyond trading, integrating financial services such as lending and payment solutions, signaling a shift toward a more bank-like model.

Coinbase’s influence in the financial sector is growing rapidly, with strategic moves such as a partnership with Tether to facilitate stablecoin transactions in UAE real estate and an active push for crypto regulation in Nigeria. The company remains the largest U.S. crypto exchange and the primary custodian for U.S. spot Bitcoin ETFs, further solidifying its dominance. Coinbase has also expanded its Web3 presence with the acquisition of Spindl, an Ethereum layer-2 project aimed at boosting on-chain advertising and infrastructure capabilities.

As its financial footprint expands, Coinbase has also gained political relevance. Armstrong recently revealed that discussions at the World Economic Forum (WEF) in Davos were heavily focused on former President Donald Trump’s potential influence on crypto regulation. 

Trump has pledged to position the U.S. as a global leader in both artificial intelligence and cryptocurrency, fueling speculation about the creation of a Strategic Bitcoin Reserve under his administration. This intersection of regulatory uncertainty, institutional adoption, and political developments continues to shape the future of Coinbase and the broader cryptocurrency market.

This article has been refined and enhanced by ChatGPT.