In a significant development, the U.S. Securities and Exchange Commission (SEC) rejected a petition from Coinbase Global that sought new rules for the digital asset sector. Coinbase, the largest cryptocurrency exchange in the United States, expressed its intention to challenge the decision in court.

The five-member commission voted 3-2 against proposing new rules, asserting that it disagreed with Coinbase’s argument that current regulations are “unworkable” for the crypto sphere. The SEC’s decision has sparked a legal dispute, adding to the ongoing tension between the crypto sector and the top U.S. markets regulator.

Coinbase promptly notified an appeals court of its plans to seek judicial review of the SEC’s denial, indicating the likelihood of a protracted legal battle.

The SEC has consistently maintained that most crypto tokens are securities, subject to its regulatory authority. The agency has taken legal action against several crypto companies, including Coinbase, alleging that they listed and traded tokens that should be registered as securities.

SEC Chair Gary Gensler supported the decision, emphasizing that existing laws and regulations apply to the crypto securities markets. However, Coinbase’s chief legal officer, Paul Grewal, contested this perspective, stating that the industry requires clearer laws and rules to benefit consumers and foster U.S. innovation.

Coinbase had urged the SEC to establish a tailored set of rules for the crypto sector in 2022, arguing that existing U.S. securities laws are insufficient. The company’s push for regulatory clarity included an appeal to a judge in April, requesting a response to its petition.

The disagreement underscores the broader challenges in defining the regulatory framework for the cryptocurrency industry. Crypto firms are seeking clarity on when the SEC deems a digital asset to be a security, highlighting the evolving dynamics between regulators and the rapidly growing crypto space.

While the SEC’s decision has set the stage for a legal showdown, the outcome could have lasting implications for the regulatory landscape governing digital assets in the United States. The crypto community will closely watch the developments in this legal battle as it unfolds.

Note: This news is based on the original Reuters report by Chris Prentice, Michelle Price, and Mike Scarcella.