Kentucky Drops Lawsuit Against Coinbase, Joining Vermont and South Carolina

• Kentucky dropped its lawsuit against Coinbase on April 1, following similar moves by Vermont and South Carolina.
• Governor Andy Beshear signed House Bill 701 on March 24, backing Bitcoin rights and staking protections.
• Kentucky may invest 10% of excess reserves in crypto, joining other crypto-forward U.S. states.

Just a week after signing a major pro-crypto bill into law, Kentucky has stepped back from its legal fight with Coinbase. The state’s Department of Financial Institutions filed a joint dismissal with the crypto exchange on April 1, bringing an end to its lawsuit tied to Coinbase’s staking rewards program. That move puts Kentucky in step with Vermont and South Carolina, both of which recently pulled their cases as well.

Coinbase’s chief legal officer Paul Grewal urged Congress to take action, stating that lawmakers should “end this litigation-driven, state-by-state approach with a federal market structure law.”

Back in June 2023, Kentucky was one of 10 states that decided to take action against Coinbase on the same day the Securities and Exchange Commission (SEC) launched its lawsuit against the exchange. Since then, however, the SEC has softened its stance, dropping its lawsuit on February 27. That move appears to have influenced state-level regulators to rethink their approach.

Coinbase Sees Legal Victory Momentum

Vermont was the first to step away from the courtroom. On March 13, the state’s Department of Financial Regulation formally dropped its lawsuit, referencing the SEC’s retreat and hinting that the tide may be turning in how digital assets are treated at the federal level. South Carolina followed just two weeks later. On March 27, it filed a joint dismissal with Coinbase through its Attorney General’s securities division.

“One by one, in just a few short months, states across the country and party lines are standing up for consumers and sound law,” Grewal said, emphasizing the positive effects of such actions on customers, innovation, and economic opportunity.

Kentucky’s decision to drop the case also aligns with its recent push for pro-crypto legislation. Just days before Kentucky ditched the lawsuit, Governor Andy Beshear signed House Bill 701 into law on March 24. Dubbed the “Bitcoin Rights” bill, it sets out clear protections for digital asset users in the state. The law passed unanimously in both the House and Senate—a sign of rare political unity.

Crypto Mining and Bitcoin Reserves Gain Support

The bill shields mining operations from burdensome zoning laws and protects crypto staking from being labeled as securities. It also gives people the legal right to self-custody their digital assets and run blockchain nodes without interference. But Kentucky’s ambitions don’t stop there.

Lawmakers are now considering another bill that would allow up to 10% of the state’s excess reserves to be invested in Bitcoin and other digital assets. If passed, that move would place Kentucky alongside states like Oklahoma, Missouri, and Arizona that are also exploring how to include crypto in state investment strategies.

Meanwhile, not all states are ready to call it quits. Lawsuits against Coinbase are still active in Alabama, California, Illinois, Maryland, New Jersey, Washington, and Wisconsin. These states claim Coinbase’s staking rewards program crosses the line into unlicensed securities territory.

Related Readings | South Carolina Drops Coinbase Lawsuit, Second State to Back Down on Staking