Coinbase FOIA Documents Reveal SEC Internal Communication About XRP and Ethereum

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In a significant development for the cryptocurrency regulatory landscape, Coinbase has released previously undisclosed internal communications from the U.S. Securities and Exchange Commission (SEC), obtained through Freedom of Information Act (FOIA) requests. These documents shed light on the SEC’s evolving stance on two of the most prominent digital assets—XRP and Ethereum (ETH)—and offer rare insight into how federal regulators assess whether a crypto asset qualifies as a security.

The released materials include internal emails, official correspondence, and regulatory assessments dating back to 2021. They reveal not only internal debates within the SEC but also coordination attempts with state-level agencies, particularly the New York Attorney General’s office. This information is crucial for investors, developers, and exchanges navigating an increasingly complex compliance environment.

The SEC’s Internal Doubts About XRP’s Security Status

One of the most revealing aspects of the FOIA documents is the internal skepticism within the SEC regarding XRP’s classification as a security. Despite the agency’s public position that XRP is a security, internal 2021 emails show that SEC staff questioned whether the digital asset truly met the criteria under the Howey Test—the legal standard used to determine if an investment qualifies as a security.

Notably, one internal discussion involved SEC personnel contemplating what would happen to the XRP Ledger (XRPL) if Ripple, the company behind XRP, were to cease operations. This line of inquiry suggests that regulators were considering the decentralized nature of the network—a factor often cited in determining whether an asset relies on the efforts of a central party, a key criterion in the Howey Test.

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This internal deliberation contrasts with the SEC’s December 9, 2021, letter to Ripple, in which the agency explicitly referred to XRP as a security. The letter expressed concern over Ripple’s planned launch of Liquidity Hub, a platform designed to facilitate cross-border payments using various digital assets, including XRP. The SEC criticized Ripple for not seeking regulatory guidance before launching the service.

At the time, the SEC argued that Ripple intended to offer XRP—classified as a security—as part of its platform, thereby violating federal securities laws. However, Ripple responded by calling the SEC’s claims “confounding,” emphasizing that the SEC is not its prudential regulator and pointing out that prior engagement with the agency often led to enforcement actions rather than clarity.

Ripple vs. SEC: A Landmark Legal Battle

The tension between Ripple and the SEC dates back to December 2020, when the SEC filed a lawsuit alleging that Ripple conducted an unregistered securities offering by selling XRP and raising $1.3 billion. The case became a focal point in the broader debate over crypto regulation in the United States.

Ripple contested the claim, arguing that XRP functions as a currency or commodity rather than a security, especially given its widespread use on exchanges and within payment networks independent of Ripple’s control. After years of litigation, a federal court in New York ruled in July 2023 that XRP is not inherently a security, particularly when sold on public exchanges or by programmatic means.

This decision was a major win for the crypto industry, reinforcing the argument that not all tokens issued by companies automatically qualify as securities. The court’s nuanced approach—distinguishing between sales to institutional investors (which may be securities) and open market transactions—has since influenced other regulatory interpretations.

New York’s Push to Classify Ethereum as a Security

Beyond XRP, the FOIA documents also reveal efforts by state regulators to influence the classification of Ethereum. In June 2023, Shimso Maswoswe, head of the New York Attorney General’s Investor Protection Bureau, emailed the SEC requesting that it file an amicus brief in New York’s lawsuit against KuCoin.

The goal? To support New York’s argument that Ethereum (ETH) is an unregistered security. This move followed New York’s lawsuit against KuCoin for allegedly facilitating trading in unregistered securities and commodities. By seeking backing from the SEC—a federal authority with expertise in securities law—New York aimed to strengthen its legal position.

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The New York Attorney General’s office argued that an SEC endorsement would enhance investor protection by clarifying ETH’s status. However, despite this push, no formal amicus brief was filed by the SEC. Months later, KuCoin settled with New York regulators, agreeing to exit the state and pay a $28 million fine.

Importantly, the settlement did not establish a legal precedent on ETH’s classification. Meanwhile, the SEC launched its own investigation into whether ETH should be considered a security—a move that prompted ConsenSys, a leading Ethereum software company, to file a lawsuit against the agency.

That case was eventually dropped after the SEC approved multiple Ethereum spot ETFs—a de facto acknowledgment that ETH may not meet the definition of a security under current enforcement policy.

FAQ: Understanding Crypto Regulatory Developments

Q: Does the SEC still consider XRP a security?
A: While the SEC initially classified XRP as a security, a 2023 federal court ruling determined that XRP is not inherently a security, especially when traded on public exchanges. The SEC has not formally updated its stance, but enforcement actions have shifted post-ruling.

Q: Is Ethereum considered a security by U.S. regulators?
A: As of now, there is no official classification declaring ETH a security. The SEC’s approval of Ethereum ETFs suggests a regulatory stance that treats ETH more like a commodity than a security.

Q: What does “Howey Test” mean in crypto regulation?
A: The Howey Test is a legal framework used to determine if an investment qualifies as a security. It asks whether there is an investment of money in a common enterprise with an expectation of profit derived from the efforts of others—key factors in assessing tokens like XRP or ETH.

Q: Why did Ripple win its case against the SEC?
A: The court found that while some institutional sales of XRP might qualify as securities offerings, retail sales on exchanges and programmatic sales do not meet the criteria under the Howey Test, especially given XRP’s decentralized use.

Q: How do FOIA requests help increase transparency in crypto regulation?
A: FOIA requests allow public access to government records, including internal communications. In this case, Coinbase’s use of FOIA revealed previously hidden regulatory debates, helping stakeholders understand how decisions are made.

Q: Could other cryptocurrencies face similar legal scrutiny?
A: Yes. Assets with centralized development teams or promotional activities by founding entities may be scrutinized under securities law. The outcomes of cases like Ripple’s set important precedents for future enforcement.

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Core Keywords and Industry Implications

The release of these internal documents highlights several core keywords essential to understanding modern crypto regulation:

These terms are not just legal jargon—they represent real-world factors affecting market sentiment, exchange listings, and investor confidence. As regulatory clarity slowly emerges, stakeholders must stay informed about how agencies interpret decentralization, utility, and investor expectations.

The Coinbase-released FOIA materials underscore a critical truth: even within regulatory bodies, there is ongoing debate about how to classify digital assets. This uncertainty underscores the need for clear, consistent guidelines that balance innovation with investor protection.

For investors and builders alike, understanding these regulatory dynamics is no longer optional—it's essential. Whether it's assessing tokenomics, exchange compliance, or long-term holding strategies, awareness of legal frameworks can make all the difference.

As the crypto ecosystem evolves, transparency initiatives like FOIA requests will continue playing a vital role in holding institutions accountable and shaping fairer policies for all participants.