On July 13, 2025, Coinbase (NASDAQ: COIN) saw its stock surge more than 24% in a single day—an extraordinary move that sent ripples across the financial and crypto markets. This dramatic uptick wasn’t driven by a new product launch or record-breaking revenue, but by a pivotal legal development in the broader cryptocurrency regulatory landscape.
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The catalyst? A U.S. federal court ruling that XRP, the native token of Ripple Labs, is not a security when sold on secondary markets to retail investors. This landmark decision not only redefined how digital assets may be classified under U.S. securities law but also gave Coinbase a powerful precedent to support its ongoing legal battle with the Securities and Exchange Commission (SEC).
The Ripple Effect: How an XRP Ruling Boosted Coinbase
The court’s judgment clarified a long-standing ambiguity: while Ripple’s institutional sales of XRP were deemed securities offerings, its open-market transactions involving retail buyers were not. This distinction is crucial—it implies that cryptocurrency exchanges like Coinbase, which facilitate peer-to-peer trading of digital assets, do not inherently engage in unregistered securities sales simply by listing tokens.
This favorable outcome energized the entire crypto sector. Bitcoin rose 4.2%, Ethereum climbed 6.6%, and investor confidence in regulated U.S. platforms surged. For Coinbase, the implications were immediate and profound. Within hours of the ruling, the company announced it would relaunch XRP trading on its network—a move symbolizing both regulatory resilience and strategic agility.
But while the Ripple decision provided momentum, it was only part of the story.
Inside Coinbase’s Legal Defense Against the SEC
On the same day investors celebrated the XRP verdict, Coinbase faced off with the SEC in a two-hour preliminary hearing—the first formal step in what could become one of the most consequential crypto regulation cases in U.S. history.
The SEC had filed charges against Coinbase in June, alleging that the exchange unlawfully offered 13 digital assets as unregistered securities. In response, Coinbase submitted a comprehensive 177-page legal filing on June 28, laying out a robust defense built on jurisdictional and definitional grounds.
Key Arguments from Coinbase’s Legal Filing
- Coinbase operates as a secondary market, not a securities exchange or broker-dealer. It does not issue tokens or raise capital for projects—its role is purely facilitative.
- The SEC previously approved Coinbase’s S-1 registration statement in 2021 without requiring it to register as a securities platform—a contradiction to its current stance.
- Six of the 12 tokens currently targeted by the SEC were already listed on Coinbase even after their issuers registered with the SEC—suggesting inconsistent enforcement.
- Former SEC Chair Gary Gensler himself stated in 2021 during congressional testimony that the agency lacked statutory authority to regulate crypto trading platforms like Coinbase.
- Assets traded on Coinbase fail the Howey Test, which defines an “investment contract” under U.S. law. There is no common enterprise or expectation of profit derived from others’ efforts.
- The SEC has unilaterally expanded the definition of "investment contract" without congressional approval, overstepping its regulatory mandate.
At the heart of Coinbase’s argument lies a dual claim:
- It does not participate in primary market offerings, so it cannot be liable for selling securities.
- The SEC lacks clear legal authority to regulate decentralized digital assets.
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SEC’s Counterattack: Challenging Coinbase’s Interpretation
On July 7, the SEC responded with a sharply worded rebuttal, dismissing Coinbase’s legal reasoning as flawed and historically inconsistent.
The commission argued:
- Its prior approval of Coinbase’s registration was based on information available at the time and doesn’t preclude future enforcement.
- Coinbase actively influences how projects market their tokens—blurring the line between neutral platform and active promoter.
- The exchange misapplies contract law principles to evade securities regulations.
- The idea that an asset ceases to be a security once it enters secondary markets is legally unsound.
“Coinbase ignores over 75 years of controlling precedent under Howey, attempting instead to craft a new test rooted in pre-1933 Blue Sky laws,” wrote the SEC.
This clash underscores a deeper conflict: whether existing financial regulations can—or should—be retrofitted to govern decentralized technologies designed to operate beyond traditional frameworks.
The Broader Implications: Major Questions Doctrine and Regulatory Overreach
During yesterday’s hearing, Judge Katherine Polk Failla probed both parties on foundational issues: What defines a security in the digital age? Can Congress’s silence empower agencies to regulate emerging tech? And does the SEC have legitimate jurisdiction over decentralized networks?
Coinbase invoked the major questions doctrine, a legal principle stating that agencies must have explicit congressional authorization to make decisions of vast economic and political significance. Given that Congress has not passed comprehensive crypto legislation, Coinbase contends that the SEC cannot unilaterally declare dozens of digital assets as securities.
Moreover, Coinbase highlighted former SEC Director Bill Hinman’s 2018 speech affirming that Bitcoin and Ethereum are not securities—a position that contradicts the agency’s current aggressive posture toward major platforms.
Market Reaction and Investor Sentiment
The stock surge reflects more than optimism—it signals a recalibration of risk perception. After months of regulatory uncertainty weighing on valuations, investors now see a path where clear judicial standards may limit unchecked agency power.
However, risks remain:
- Ongoing litigation could last years.
- Regulatory scrutiny may expand to include staking, lending, and token listings.
- Trading volumes have declined industry-wide due to macroeconomic pressures.
These challenges aren’t fully priced into Coinbase’s current valuation.
Frequently Asked Questions (FAQ)
Q: Why did Coinbase's stock rise after the XRP ruling?
A: Because the court decision set a precedent that secondary market crypto sales aren’t automatically securities, strengthening Coinbase’s legal position against the SEC.
Q: Is XRP now considered a security?
A: No—only Ripple’s institutional sales were ruled as such. Retail trading on exchanges like Coinbase does not constitute a securities offering under this ruling.
Q: Can the SEC regulate all cryptocurrencies as securities?
A: Not without legal basis. Each asset must be evaluated individually using the Howey Test. The SEC cannot broadly classify decentralized tokens as securities without evidence of centralized control and profit expectations.
Q: What is the major questions doctrine?
A: It’s a legal principle requiring Congress to clearly authorize agencies on issues of major national importance—such as regulating an entire emerging industry like crypto.
Q: Will this case affect other crypto exchanges?
A: Yes. A favorable outcome for Coinbase could limit SEC overreach and create safer operational guidelines for all U.S.-based platforms.
Q: Does Coinbase claim any tokens are securities?
A: Yes—Coinbase acknowledges some digital assets meet the definition and complies with applicable rules when required.
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Conclusion: A Turning Point for Crypto Regulation
While the XRP ruling didn’t directly involve Coinbase, it provided critical momentum in its fight for regulatory clarity. Combined with its well-structured legal arguments and invocation of constitutional checks on agency power, Coinbase has positioned itself not just as a defendant—but as a standard-bearer for fair and principled crypto regulation.
The road ahead remains uncertain, but one thing is clear: this case will help define whether America leads—or lags—in the global digital asset economy.
Core Keywords: Coinbase, SEC lawsuit, XRP ruling, crypto regulation, Howey Test, major questions doctrine, secondary market, digital assets