As cryptocurrency moves further and further into the mainstream financial markets, it’s not just traders taking notice. Regulators, banks, governments, and the courts are all becoming increasingly involved in this new asset class.
Recently, the U.S. Supreme Court was asked to consider a case involving Coinbase and its ability to resolve disputes through arbitration—marking what appears to be the very first crypto lawsuit between crypto holders and regulators reaching America’s highest court of law.
Whether you are an investor or simply curious about how this could affect those investing in cryptocurrencies, understanding this event is critical for anyone wanting to keep their finger on digital currencies.
In this article, we’ll be taking a closer look at the lawsuit, its implications for crypto holders like yourself, and why everyone needs to pay attention to ongoing developments in this space.
What Is the First Crypto Lawsuit?
On March 20th, 2023, the U.S. Supreme Court heard oral arguments in the first crypto case to reach United States high courts. The lawsuit involves San Francisco-based cryptocurrency exchange Coinbase, which is trying to halt two class-action lawsuits against the company.
Coinbase is currently appealing an earlier decision by a California federal court that allowed the two lawsuits, Bielski v. Coinbase and Suski v. Coinbase, to continue.
We’ll explain the cases in a bit, but what’s important to know is that this actual case (the one being heard in the U.S. Supreme Court) centers around whether a lawsuit can proceed in federal court while one party, in this case, Coinbase, is attempting to send the dispute to arbitration.
Coinbase argues that its user agreement requires disputes to be resolved through arbitration. This means that the Supreme Court case is not specifically about cryptocurrency but about procedural issues regarding the lawsuit.
However, it could have significant implications for the cryptocurrency industry, as it could set a precedent for future cases involving digital asset markets. The lawsuit’s outcome could also impact the regulation and litigation of cryptocurrency exchanges in general.
What to Know About Coinbase Lawsuits
There isn’t one Coinbase lawsuit currently active, but two large ones. They’re pretty complex lawsuits, so we’ve briefly summarized them below to make them easier to understand.
Bielski v. Coinbase
The Bielski v. Coinbase lawsuit alleges that Coinbase violated the law by failing to reimburse Abraham Bielski the $31,000 he lost to a scammer who falsely claimed to represent PayPal. The scammer gained access through his Coinbase account.
What’s Coinbase’s stance? The crypto investing platform says its user agreement requires disputes to be resolved through arbitration.
This means that, as mentioned, the case is not about cryptocurrencies. Instead, it revolves around a procedural question. Can a lawsuit proceed in federal court when one party attempts to move the dispute to arbitration? That’s what Coinbase is trying to answer.
Coinbase is appealing a lower court decision that did not allow the company to compel arbitration in the case. So what’s the big deal here? The case outcome could have significant implications for the future of cryptocurrency exchanges and dispute resolution.
Suski v. Coinbase
The Suski v. Coinbase lawsuit involves a million-dollar sweepstake that Coinbase held in June 2021. Plaintiffs, including Suski, claim that the company misled customers by requiring them to buy or sell $100 worth of dogecoin to be eligible for the sweepstakes.
The plaintiffs argue that Coinbase’s ads suggested that trading dogecoin was the only way to participate in the sweepstakes. However, the fine print revealed that non-traders were also eligible for the sweepstakes.
The lawsuit alleges that Coinbase violated California law and engaged in unfair competition by misleading customers through false and deceptive advertising. The case is one of two against Coinbase that the company is trying to halt via an appeal to the U.S. Supreme Court.
Like the Bielski v. Coinbase case, Suski v. Coinbase tackles a procedural issue about whether a lawsuit can move forward in federal court while one party is trying to move it to arbitration.
The importance of this case is slightly different, though. The case could have important implications for consumer protection. It could set a precedent for how other cryptocurrency exchanges market promotions and sweepstakes.
Ferguson v. Coinbase
While we’re here talking about Coinbase lawsuits, it’s important to note that the two mentioned above aren’t the only active lawsuits. They’re simply the ones gaining media attention. However, another massive lawsuit involving Jared Ferguson is problematic as well.
In March 2023, Ferguson sued Coinbase after he lost $96,000 to theft on the platform. The company allegedly rejected his requests for help to resolve the problem.
Ferguson claims he contacted the company after discovering his life savings had been removed from his Coinbase account. He said his account had been hacked hours after someone accessed it via a new device and IP address he had never known.
He argued that Coinbase had failed to notice and stop suspicious and illegitimate transactions on its platform. The point of the case? Coinbase should be responsible for unauthorized withdrawals from user accounts under state and federal laws.
According to the lawsuit, the company refused to reimburse him for the lost funds, stating that only the user was responsible for their account’s security.
Note that this lawsuit isn’t as much about arbitration measures as the other two. Instead, it highlights the need for cryptocurrency exchanges to adopt better security measures to protect their customers’ assets.
What Do Supreme Court Judges Say?
First, it’s important to note that this case has been going on for quite a while. In April 2022, a court in the Northern District of California denied Coinbase’s motion for arbitration. They specifically said that Coinbase’s user agreement (the one that features an arbitration clause) was “unconscionable.” They also said it was a “litigation gimmick.”
In summary, the Northern District of California court that denied Coinbase’s motion last year believed that Coinbase’s arbitration clause was only used to “gain leverage over consumers.”
That was the first big blow to the crypto exchange Coinbase. However, it didn’t stop there. That same decision was upheld at the San Francisco 9th U.S. Circuit Court of Appeals a few months later, in July 2022. Judges agreed the clause was “unconscionable.”
Overall, judges seem to worry that allowing larger cases like these to be handled via arbitration puts customers at a disadvantage. Arbitration typically favors defendants. In this case, that would be Coinbase.
Note that judges haven’t seemed to comment directly on the cases themselves. Again, it’s not really about who lost what or even about the security measures these companies take to protect user data.
Instead, these cases are all about how big crypto exchanges will handle customer lawsuits moving forward. This first crypto lawsuit is, therefore, important as it will set a precedent that could drastically favor or disfavor consumers in the future.
Why These Crypto Cases Matter
The U.S. Supreme Court cases involving Coinbase will not determine whether cryptocurrencies are lawful. We’re far past that in the world of cryptocurrencies. However, the cases could significantly impact the legal landscape of the crypto environment.
The outcome of these cases could have wide-ranging implications for other cryptocurrency companies that face similar lawsuits. This lawsuit could create a legal precedent for litigation regarding cryptocurrency exchanges. This means it would affect how these companies handle future class-action lawsuits.
The decision taken by the U.S. Supreme Court could affect the regulation of cryptocurrency exchanges and the handling of disputes through out-of-court methods for dispute resolution in these cases.
Overall, that’s why this first crypto-related case is so pivotal. They could influence the cryptocurrency industry’s future regarding legal matters and customer disputes. The outcomes could set important precedents for similar cases in the future to follow. This could be good or bad for investors.
Making Safe Investments
What does this first crypto lawsuit mean for you? The outcome could determine a lot. However, what’s most important is that you make safe investments.
At FDAR, we understand the complexities of the crypto industry. That’s why we provide various resources for crypto risk professionals. Our website features research papers, webinars, podcasts, online courses, and a community forum.
Our resources cover various subjects related to digital assets and risk management. You’ll find everything from regulatory compliance and cybersecurity to portfolio management and investment strategies.
As a crypto investor, we’re here to help you make sense of your rights. Our goal is to help you navigate the ever-changing landscape of the crypto industry. Click here to read through all of our helpful resources.