The cryptocurrency exchange Coinbase said on Friday that the Securities and Exchange Commission had agreed to drop its lawsuit against the company, lifting a legal cloud over the global crypto industry and signaling a broader retreat by federal regulators.
Coinbase, in a post on its website and in a regulatory filing, said it had reached an agreement in principle with the S.E.C. to have the lawsuit withdrawn without any financial penalty. If the S.E.C. confirms the proposed settlement, it would be a remarkable reversal by the agency after years of legal battles against crypto firms.
The S.E.C. sued Coinbase, the largest U.S. crypto company, in 2023 on the grounds that the digital currencies sold on its platform constituted unregistered securities that put consumers at risk of financial harm.
Any settlement that results in a dismissal of the lawsuit would require the approval of the S.E.C.’s commissioners. A spokesperson for the agency declined to comment on Coinbase’s announcement.
The lawsuit was the most significant of several that the S.E.C. had filed against major crypto companies, arguing that they were operating outside the law. A victory for the government could have threatened the continued operation of Coinbase, a publicly traded company worth about $65 billion, and decimated the broader crypto market.
The dismissal would be the biggest victory for the crypto industry since President Trump took office last month, promising to end the Biden administration’s regulatory crackdown on crypto under the previous S.E.C. chair, Gary Gensler. And it would underline the growing influence in Washington of billionaire technology executives, who wrote enormous checks to support Mr. Trump’s campaign, hoping to secure softer regulation.
Paul Grewal, Coinbase’s chief legal officer, said in an interview that the agreement was “nothing short of a complete win” — Coinbase would not have to admit to any wrongdoing or pay a fine. The agency agreed to dismiss the case with prejudice, he said, meaning that the lawsuit can’t be brought again.
“The case goes away as if it had never been filed,” Mr. Grewal said.
On Friday, he discussed the proposed resolution in a blog post titled “Righting a major wrong.”
Dennis Kelleher, chief executive of Better Markets, a nonprofit that pushes for more transparency on Wall Street, said the S.E.C.’s apparent “unilateral surrender” would undermine trust in the commission’s ability to regulate markets and protect investors.
“The S.E.C. used to enforce the law without fear or favor but is now favoring the crypto industry and fearing billionaire crypto kingpins who are publicly belittling the agency,” Mr. Kelleher said.
Coinbase operates as a marketplace for cryptocurrencies — a platform where investors can easily convert dollars into digital assets like Bitcoin or Ether. Every time a sales goes through, the company collects a fee.
Coinbase went public in 2021, a landmark for the crypto industry in the United States. Its founder and chief executive, Brian Armstrong, instantly became one of the wealthiest tech executives in the country.
But the next year, the collapse of FTX, one of Coinbase’s top rivals, sent crypto markets into a meltdown. Mr. Gensler accelerated a crackdown on the industry that he had started when he took over the agency in 2021.
His legal argument was simple: Virtually all cryptocurrencies are securities, just like stocks and bonds traded on Wall Street. Anyone offering them should have to register with the S.E.C. and follow strict rules to protect investors. He pointed to a century-old Supreme Court ruling on what constituted an investment contract, arguing that it should govern digital assets.
As the top vendor for cryptocurrencies in the United States, Coinbase became one of Mr. Gensler’s primary targets. In the 2023 lawsuit, the S.E.C. argued that the company had “elevated its interest in increasing its profits over investors’ interests, and over compliance with the law.”
Under Mr. Gensler, the agency filed similar suits against other top crypto marketplaces, like Binance and Kraken. (Those suits are still pending.) Crypto executives argued that Mr. Gensler was using unfair enforcement actions and an outdated playbook to regulate the fast-growing industry. They lobbied for federal legislation that would have given oversight of the industry to the Commodity Futures Trading Commission, a much smaller and less aggressive regulator than the S.E.C.
A complex legal battled ensued, with judges in various jurisdictions issuing sometimes conflicting opinions about the legal status of cryptocurrencies. Last year, the judge overseeing the Coinbase case rejected a motion by the company to dismiss the suit, setting the stage for a yearslong legal battle that could have reached the Supreme Court.
But while crypto firms were fighting the S.E.C. in court, the industry was also mobilizing to reshape the political landscape.
Crypto executives threw their support behind Mr. Trump, who started his own crypto business last year. Wealthy tech investors like Marc Andreessen, whose venture firm is a major investor in crypto, cited Mr. Trump’s support for digital currencies as a key reason they were backing him.
The crypto industry also sought to influence Congress: Coinbase was one of the top funders of Fairshake, a crypto super PAC that donated more than $130 million to legislative candidates.
Since his victory, Mr. Trump has taken a series of steps to advance the industry’s interests. He picked the venture investor David Sacks, a crypto enthusiast, as the White House’s “crypto and A.I. czar.” And he nominated Paul Atkins, a securities lawyer who has consulted for crypto companies, to lead the S.E.C.
While Mr. Atkins awaits confirmation, Mark T. Uyeda, a Republican S.E.C. commissioner, is leading the agency. This month, the S.E.C. scaled back its crypto enforcement efforts, reassigning lawyers who had worked on a 50-person team dedicated to crypto cases.
Mr. Grewal, a former federal judge, declined to name the S.E.C. officials who had negotiated the resolution of the case with Coinbase. But he said the deal had the “full support of leadership.” Next week, he said, the agency’s commissioners will vote to approve the deal, a process that he described as a formality.
“Our ending this case on such stark terms with the S.E.C. surrendering offers a model and template,” Mr. Grewal said. “I’m hopeful that ours will be not the last but rather the first of these cases to fall.”
Some former S.E.C. lawyers, however, expressed concern about the fallout from the decision.
John Reed Stark, a former S.E.C. enforcement official and now a regulatory consultant, said it was rare for the commission to dismiss cases like the Coinbase one, in which a judge has already rejected a motion to toss out the litigation. He said it could affect staff morale at the S.E.C.
“This radical turnabout has never occurred,” Mr. Stark said. “They have already cut the crypto unit in half. Every single person who has worked in this group is absolutely devastated.”