The federal judge who oversees the SEC suit v. Coinbase ruled on Tuesday that the case must be stayed until an appeals court can take a stand. U.S. District Judge Katherine Failla agreed with Coinbase’s argument that too many courts across the country are reaching different conclusions about the legality of crypto, which should be recognized as a novel legal question.

The Verdict is undoubtedly a blow to the SEC, which has argued for years under the Biden administration that the sale of most crypto assets is clearly illegal under existing securities laws.

In her decision today, Judge Failla clearly rejected this position, noting that the question of how securities laws apply to crypto is a “matter of first impression,” that is, a question that has never been decided before and that the courts are considering first Have to weigh things up.

Because the legality of cryptocurrencies is such a novel and complicated legal issue, it is understandable why courts across the country are reaching different conclusions about the technology, Failla wrote – a situation that cannot be allowed to continue.

“Conflicting authority exists regarding Howey’s application to crypto assets,” the judge wrote, referring to the so-called Howey test that the SEC and federal courts have long used to determine an asset’s status as a security. “The Application of Howey on crypto-assets raises a difficult question of first impression for the Second Circuit.”

In short, the Howey test— established in a Supreme Court case in 1946 — states that an asset must check four boxes to be considered an “investment contract,” a type of security. It essentially boils down to investing money (buying an asset) in a common venture (e.g. a company) with the expectation that you will get a return on that investment without any effort of your own. Stocks fit exactly into this category. Judge Apparently, Failla feels that the matter regarding crypto tokens is not yet settled – so on to the Second Circuit.

The Second Circuit Court of Appeals, one of thirteen federal appeals courts in the United States, will now decide whether to agree to hear the SEC’s case against Coinbase as part of the preliminary appeal. When the case is heard, a judge from this powerful circle will then decide whether it should be heard in Judge Failla’s courtroom or dismissed based on the underlying issues.

In order to grant Coinbase’s request for an interim appeal, Judge Failla had to determine that immediately appealing the case in the middle of the trial would significantly increase the likelihood of dismissal. She did so, writing that today’s grant of preliminary relief “could result in the dismissal of the majority of the SEC’s claims against Coinbase.”

Of course, the crypto legal community was very excited about the ruling this afternoon, with some experts suggesting it could have far-reaching implications.

“Today’s ruling in SEC v. Coinbase marks a potentially pivotal moment in the law surrounding digital assets,” Amanda Tuminelli, chief legal officer of crypto lobby group DeFi Education Fund, said in a statement shared with Decipher.

“For the first time, a federal court will have the opportunity to address the crucial legal question of the extent of the SEC’s statutory authority over digital assets,” she continued. “If the Second Circuit accepts Coinbase’s appeal, it will have the opportunity to provide the legal clarity the industry has been demanding.”

Bill Hughes, senior counsel at Ethereum software giant Consensys, argued that today’s ruling by Judge Failla in the Coinbase case should be quickly applied to similar, pending crypto lawsuits across the country.

“Any enforcement case brought by the SEC in which this issue would largely determine the outcome should be stayed,” he said in one post on X (formerly Twitter).

The SEC did not immediately respond DecipherPlease comment on his reaction to today’s ruling.

The SEC’s possible crypto policy change comes just weeks before Donald Trump is set to retake the White House and impeach President Joe Biden anti-crypto Administration. Trump’s choice of former SEC Commissioner Paul Atkins to be the agency’s next chairman was widely viewed as a failure Very crypto-friendly move This was supported by industry leaders.

How a crypto-friendly SEC and DOJ under the Trump administration will tackle pending federal lawsuits against it numerous American crypto companies remains an open question for now.