A federal judge in Manhattan on Wednesday accused Coinbase and U.S. securities regulators of disagreements over whether digital assets are and are not securities in a case closely watched by the crypto industry.

Coinbase opposed classifying cryptocurrencies as securities, arguing that digital coins are like Beanie Babies and more like collectibles than company stock.

“There’s a difference between buying Beanie Babies and buying Beanie Babies,” said William Savitt, a lawyer for Coinbase.

Coinbase has asked a court to dismiss a Securities and Exchange Commission lawsuit alleging that the largest U.S. cryptocurrency exchange is selling unregistered securities in defiance of regulations.

The SEC countered this argument by arguing that purchasing the token amounted to acquiring the issuer’s company.

The SEC argued that the crypto tokens at the center of the lawsuit support larger “companies” and are akin to investment contracts.

“When they buy this token, they are investing in the network behind it. You cannot separate one from the other. As the value of the network or ecosystem increases, [associated] It’s a token,” SEC attorney Patrick Costello said.

Judge Katherine Polk Failla heard arguments from both sides on Wednesday, focusing her questions on case law defining what securities regulators consider investment contracts and the attributes of some crypto tokens traded on platforms such as Coinbase. did. Failla said he was still considering several questions after a hearing that lasted more than four hours and did not decide the issue in court.

The judge’s ruling helps clarify the SEC’s jurisdiction over this area and is likely to impact digital assets. This case is one of many filed by the SEC against the crypto sector. The agency initially focused on companies selling digital tokens, but under the chairmanship of Gary Gensler, it has targeted companies that provide trading platforms, clearing activities, and act as broker-dealers.

The SEC sued Coinbase in June, accusing it of facilitating trades in at least 13 crypto tokens, including Solana, Cardano, and Polygon, which should have been registered as securities.

Although the Securities Act of 1933 outlined the definition of the term “security,” many experts rely on U.S. Supreme Court precedent to determine whether an investment product qualifies as a security. Masu. The key test is whether people are contracted to invest in common companies with the expectation of profit.

Coinbase argued that unlike stocks and bonds, crypto assets do not meet the definition of an investment contract, a position held by the majority of the crypto industry.

SEC lawyers argued that securities are different from buying collectibles like baseball cards or Beanie Babies, citing a 1990s trend in which Americans bought stuffed animals in hopes of rising prices.

“When you buy a collectible item, like a baseball card or some kind of figurine, you’re just buying that item. You’re buying something,” Costello said.

Still, Feira told SEC lawyers that he is “concerned” that the agency is seeking to “expand the definition of what constitutes a security.”

The SEC said buyers of digital assets, even on secondary markets like Coinbase’s platform, are buying tokens as investments similar to stocks and bonds.

However, Coinbase’s lawyers disagreed, pointing out that purchasers of such tokens did not sign a contract giving them the right to receive public corporate profits.

“Let me just say this: I would have been shocked to learn that the investment agreement had nothing to do with the contract,” said William Savitt, a lawyer for Coinbase.

The judge appeared to reject Coinbase’s argument that the case involved the so-called material issue doctrine. This legal principle is based on the Supreme Court’s decision that federal agencies cannot be regulated without specific authorization from Congress.

In its lawsuit, the SEC also targets Coinbase’s “staking” program, which pools assets and charges fees to verify activity on the blockchain network in exchange for “rewards” to customers. The SEC said the program should have been registered with the SEC.