The conviction of a former Coinbase executive for insider trading is the latest legal hope for cryptocurrency

Ishan Wahi, a former executive at Coinbase, admitted guilt last year to providing trading advice to his brother and a former classmate that resulted in over $1.5 million in unauthorized earnings. He can be sentenced to more over three years in jail and eventually deported because he is an immigrant from India.

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Meanwhile, Mr. Wahi continues to fight the Securities and Exchange Commission, that has filed a lawsuit against him for claiming that some of the assets of Coinbase were securities. The result of that court lawsuit is unlikely to affect Mr. Wahi's future, which is uncertain due to his ongoing legal troubles and potential jail sentence. But, it might have an impact on how the US regulates digital assets.

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Attorneys representing Mr. Wahi filed a motion in Seattle Federal Court asking for the lawsuit to be dismissed early on the grounds that the SEC has no jurisdiction because Coinbase's digital tokens are not securities. He was accused of conspiring to conduct wire fraud rather than securities fraud by the prosecution.

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The crypto industry's greatest chance of halting the SEC's effort to regulate digital assets is to oppose the commission in court cases such as the one brought by Mr. Wahi. The sector anticipates that federal judges will decide that cryptocurrency differs too much from conventional bonds and stocks to be subject to Wall Street regulations.

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Mr. Wahi's outlook is consistent with that of Coinbase, which sacked him and assisted the inquiry into his involvement in insider trading, despite the fact that Coinbase is also the subject of an SEC enforcement investigation.

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Among other alleged infractions, the SEC staff informed Coinbase that they will probably propose punitive action against the business for displaying assets that officials perceive to be securities. If the SEC files a lawsuit against Coinbase, the result may force the business to stop doing business a few of the digital content it gives its customers, which might affect the industry's development.

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Before a more extensive lawsuit against Coinbase is determined, regulators' civil case against Mr. Wahi, which is now pending, will probably be played out. The outcome of this case could establish a precedent as to what assets the SEC can control.

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"This goes beyond the impact of the prior enforcement instances where the whole thing came down to that early stage of a token's life, when the company exchanges it for cash," said Nick Morgan, a lawyer in Los Angeles whose nonprofit, Investor Choice Advocates Network, represents people battling what it calls SEC overreach. The Wahi case, by definition, includes secondary and not first transactions, hence it has a considerably wider impact.

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Several organizations, including Mr. Morgan's ICAN group, have submitted friend-of-the-court pleadings in support of Mr. Wahi's claims. Two cryptocurrency trading organizations, the Digital Chamber of Commerce as well as the Blockchain Association, also submitted documents rebutting the SEC's case. Coinbase has requested permission from the court to file its arguments.

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A spokesman for the SEC declined to comment. A Coinbase spokesperson declined to comment but cited previous tweets from the company's chief legal officer, Paul Grewal. According to Mr. Grewal, the SEC had the opportunity to provide "realistic, long-term solutions for the industry, such as establishing rules or registration choices," but instead chose to pursue a "misguided litigation."

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Mr. Wahi's legal team, Jones Day, filed a move to dismiss the lawsuit in February. According to two persons with knowledge of the matter, Coinbase is not covering the cost of Mr. Wahi's attorneys. When repeatedly questioned about the source of the project's funding, a Jones Day spokeswoman remained silent.

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The SEC's efforts to examine cryptocurrency, according to Jones Day's attorneys, are in violation of the Supreme Court's recently adopted "big questions" theory, they claim in their request. The rule prevents regulators from making decisions that have significant economic or political ramifications without whatever the majority of the justices regard to be express instruction from Congress.

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Jones Day also criticizes the SEC for using the Howey test, which dates back 76 years, to govern numerous cryptocurrency initiatives. An "investment contract," a class of security that the SEC may regulate, was defined in the Howey case.

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In the briefing, Jones Day and other attorneys representing Mr. Wahi stated that the SEC "should not interpret the word 'investment contract' as a blanket pardon to cash when it attempts to broaden its regulatory scope."

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According to court transcripts, Mr. Wahi acknowledged tipping off his brother and Mr. Ramani at his hearing on the wire accusations of fraud in February, but claimed he "relied on the comments given by Coinbase and other companies that these cryptos are not securities." He also apologized and claimed he would lose "all the life I've labored to construct for the past 17 years."

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In May, Mr. Wahi's punishment is anticipated. In January, his brother, who admitted the allegations, was given a 10 month prison term and had to return $892,500 in trading earnings.