Federal crypto regulations piecemeal, Coinbase demands federal oversight preemption
In a significant move, Oregon Attorney General Dan Rayfield sued Coinbase in April, alleging that the cryptocurrency exchange was promoting unregistered securities. This lawsuit marked the beginning of a legal battle between Coinbase and several states over digital asset regulation.
The cease-and-desist orders issued by various states took effect immediately without prior hearings, a move that Coinbase's filing describes as an attempt to resurrect the Securities and Exchange Commission's (SEC) "regulation by enforcement" playbook.
In response to the states' actions, Coinbase has filed a letter with the Department of Justice (DOJ), urging federal preemption of state crypto laws. The company argues that federal law should supersede state securities laws for digital assets, eliminating conflicting licensing requirements.
Coinbase's Chief Legal Officer, Paul Grewal, called the state actions "government run amok." Ishita Sharma, a blockchain and crypto lawyer, echoed this sentiment, stating that states cannot enact laws that impose undue burdens on interstate commerce or project their policies extraterritorially.
The filing by Coinbase details constitutional objections to state enforcement, particularly cease-and-desist orders issued by California, Maryland, New Jersey, and Wisconsin against Coinbase's staking services. The filing also mentions Maine's actions targeting self-custody wallets, requiring crypto companies to "exhaustively identify" recipients of transfers to unhosted wallets and report that information to the state during investigations.
One of the most contentious issues is New York's bid to classify Ethereum as a security, a move that Coinbase's filing claims undermines federal law. Sharma believes that a DOJ push for federal preemption would be a significant turning point because the Department rarely intervenes unless "the White House wants to reset the balance between state and federal power."
Coinbase is not alone in its pursuit of federal preemption. The company urges the DOJ to support broad preemption provisions in pending congressional legislation, including the House-passed CLARITY Act and the Senate's Responsible Financial Innovation Act. Such a move, according to Sharma, would indicate that Washington intends to treat crypto as a "national economic priority, not something left to scattered state consumer-protection rules."
As of 2025, the US Department of Justice has not publicly supported broad preemption rules in future legislation prioritizing federal over state security laws for digital currencies. The future of this legal battle remains uncertain, but one thing is clear: Coinbase is determined to challenge state regulations it deems overreaching and detrimental to the growth of the cryptocurrency industry.
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