An appeals court should order the U.S. Securities and Exchange Commission to start writing rules for crypto, Coinbase argued in its final push for rulemaking.

Crypto firms are caught in a "Catch-22,"  Coinbase said in its 36-page closing brief filed on Friday in the Court of Appeals for the Third Circuit. The SEC has asked firms to comply while also launching "scorched-earth litigation against those firms for their failure to do so," and has refused to write rules, Coinbase said.

"This pattern of conduct is a purposeful effort to destroy an industry by demanding the impossible and prosecuting companies that fail to achieve it," Coinbase said in its brief.

The agency is trying to effect a major policy change, Coinbase added.

"The SEC claims that its stance on digital assets has never shifted," the exchange said. "But that is untrue, and the SEC’s contrary evidence is nothing more than abstract statements that application of the securities laws to digital assets turns on the 'facts and circumstances'.” 

Earlier this month, the SEC rebutted Coinbase's call for rulemaking and said the exchange can't force it to write new rules. The agency argued that it was unreasonable to call existing digital asset regulation "unworkable."

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Years of asking for regulatory clarity

Coinbase and the SEC have argued for years over the need for rulemaking. Coinbase first asked the SEC to issue a formal rulemaking process to "provide guidance for the crypto industry" in July 2022. Although the SEC has not introduced crypto-specific regulations, it has proposed rules in the past year that apply to crypto. For instance, the SEC revisited a custody rule, mandating that registered investment advisors store crypto with a qualified custodian, who must adhere to specific requirements. Coinbase countered on Friday and said the SEC's rules are "ill-fitting."

The SEC has also brought enforcement actions against crypto platforms and projects over the past year. The agency sued Coinbase in a separate case in June for operating its platform without registering. Meanwhile the crypto industry has criticized the SEC for what many call "regulation by enforcement," while SEC Chair Gary Gensler has argued that most cryptocurrencies are securities and should be regulated similarly to other investments. 

Coinbase ultimately tried to force the agency to say yes or no to its rulemaking petition and sued the SEC in April 2023. The SEC later denied the request for new rules, and Chair Gensler said that existing rules already apply to crypto. Gensler also said at the time that an important part of the SEC's responsibility is figuring out how to divvy resources. He emphasized that the crypto market is small compared to the rest of the capital markets, which the agency oversees. 

The SEC declined to comment.