The resolution of a court battle with the largest US cryptocurrency corporation would be a significant victory for an industry that financially supported President Trump.
On Friday, the cryptocurrency exchange Coinbase announced that the Securities and Exchange Commission had decided to dismiss its case against it, lifting a legal cloud over the global crypto business and signaling a larger retreat by federal regulators.
Coinbase announced in a website post and a regulatory filing that it has achieved an agreement in principle with the SEC to dismiss the complaint without incurring any financial penalties. If the SEC approves the proposed settlement, it will be a significant reversal for the agency after years of legal battles with crypto businesses.
The SEC sued Coinbase, the largest cryptocurrency startup in the United States, in 2023, alleging that the digital currencies sold on its platform were unregistered securities that put consumers at risk of financial harm.
Any settlement that results in the dismissal of the lawsuit would need to be approved by the SEC commissioners. A spokesman for the regulator declined to respond to Coinbase's announcement.
The case was the most serious of several that the SEC had brought against prominent cryptocurrency organizations, alleging that they were operating illegally. A government victory might have jeopardized the future functioning of Coinbase, a publicly traded business valued at almost $65 billion, as well as destroyed the broader cryptocurrency industry.
The firing would be the first significant triumph for the crypto industry since President Trump took office last month, promising to cease the Biden administration's regulatory campaign on cryptocurrency under the previous SEC chair, Gary Gensler. It would also highlight the growing influence of rich technology executives in Washington, who paid large checks to support Mr. Trump's campaign in hopes of securing less regulation.
Coinbase's chief legal officer, Paul Grewal, stated in an interview that the accord was "nothing short of a complete win" because Coinbase would not have to admit guilt or pay a fee. The agency decided to dismiss the case with prejudice, he added, which means the action cannot be filed again.
"The case goes away as if it had never been filed," Mr. Grewal remarked.
On Friday, he outlined the proposed resolution in a blog post titled "Righting a major wrong."
Dennis Kelleher, CEO of Better Markets, a group that advocates for greater openness on Wall Street, said the SEC's apparent "unilateral surrender" would weaken trust in the agency's ability to oversee markets and safeguard investors.
Mr. Kelleher stated, "The S.E.C. used to enforce the law without fear or favor, but now it favors the crypto industry and is afraid of billionaire crypto kingpins who publicly disparage the agency."
Coinbase functions as a cryptocurrency marketplace, providing investors with an easy way to exchange money for digital assets such as Bitcoin or Ether. The business receives a charge each time a sale is completed.
In 2021, Coinbase went public, marking a significant milestone for the US cryptocurrency market. Brian Armstrong, the company's founder and CEO, immediately rose to prominence as one of the nation's wealthiest tech leaders.
However, the bankruptcy of FTX, one of Coinbase's main competitors, the following year caused a catastrophe in the cryptocurrency markets. When Mr. Gensler took over the agency in 2021, he began a crackdown on the sector, which he intensified.
His legal argument was straightforward: Like stocks and bonds that are traded on Wall Street, almost all cryptocurrencies are securities. To protect investors, anyone offering them need to be required to register with the SEC and adhere to stringent regulations. He argued that the Supreme Court should regulate digital assets, citing a century-old decision on what made an investment contract.
One of Mr. Gensler's main targets was Coinbase, the leading cryptocurrency vendor in the US. The SEC contended in the 2023 case that the business had "placed its interest in growing its profits above the interests of investors, and over compliance with the law."
Similar lawsuits were brought by the government under Mr. Gensler against other prominent cryptocurrency platforms, such as Binance and Kraken. (Those lawsuits have not yet been resolved.) Crypto CEOs contended that Mr. Gensler was regulating the rapidly expanding sector by employing antiquated tactics and unjust enforcement measures. They advocated for federal legislation that would have placed the Commodity Futures Trading Commission, a far smaller and less assertive regulator than the S.E.C., in charge of overseeing the sector.
Judges from a number of jurisdictions issued occasionally contradictory rulings regarding the legal standing of cryptocurrencies in the ensuing complicated legal dispute. A years-long legal struggle that might have reached the Supreme Court began last year when the judge presiding over the Coinbase case denied the company's plea to have the lawsuit dismissed.
Although cryptocurrency companies were battling the SEC in court, the sector was simultaneously organizing to change the political environment.
Mr. Trump launched his own cryptocurrency company last year, and crypto executives threw their support behind him. Marc Andreessen, whose venture firm is a big cryptocurrency investor, and other wealthy tech investors pointed to Mr. Trump's support for digital currencies as a major factor in their decision to supporting him.
The cryptocurrency sector also aimed to sway Congress: Coinbase was a major contributor to Fairshake, a crypto super PAC that gave lawmakers over $130 million.
Mr. Trump has taken a number of actions to further the interests of the sector since winning the election. He appointed David Sacks, a crypto enthusiast and venture investor, as the White House's "crypto and A.I. czar." Additionally, he proposed Paul Atkins, a securities attorney who has advised cryptocurrency firms, to head the S.E.C.
Mark T. Uyeda, a Republican S.E.C. commissioner, is in charge of the agency while Mr. Atkins is awaiting confirmation. By reassigning attorneys who had been part of a 50-person team devoted to crypto issues, the S.E.C. reduced the scope of its crypto enforcement activities this month.
Former federal judge Mr. Grewal refused to identify the S.E.C. officials who had worked with Coinbase to resolve the case. However, he claimed that the agreement had the "complete backing of leadership." "The commissioners of the agency will vote to approve the deal next week," he said, characterizing the procedure as a formality.
"The way we ended this case with the S.E.C. surrendering on such harsh terms provides a model and template," Mr. Grewal stated. "I hope that our case will be the first of these to fall, not the last."
However, some former S.E.C. attorneys voiced worries about the decision's consequences.
Former S.E.C. enforcement official and current regulatory consultant John Reed Stark stated that the commission seldom dismisses cases such as the Coinbase case, when a court has already denied a move to dismiss the litigation. He claimed that it might have an impact on SEC employees' morale.
"This drastic reversal has never happened," Mr. Stark stated. "The crypto unit has already been slashed in half. Everyone who has worked with this organization is in complete and utter despair.
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