Coinbase's Dogecoin Promotion Tactics Faces the U.S. Supreme Court

By  Noah Washington November 6, 2023

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  • Coinbase faces a class action lawsuit over allegations of a deceptive dogecoin sweepstakes promotion
  • Plaintiffs claim hidden free entry method was obscured to drive up trading volume and revenue
  • Supreme Court to rule on the applicability of consumer protection laws to crypto exchange marketing tactics

Despite the Supreme Court ruling in favor of Coinbase in an arbitration lawsuit earlier this year, Coinbase still faces a class action lawsuit over allegations of deceptive dogecoin sweepstakes promotion.

The lawsuit claims that Coinbase obscured a free entry method to drive up trading volume and revenue. The Supreme Court will rule on the applicability of consumer protection laws to marketing tactics and could have implications for future court disputes involving crypto exchanges. Coinbase's victory in the arbitration lawsuit does not directly impact the crypto industry, but it may influence the outcome of future lawsuits filed against the exchange.

As the case heads to the Supreme Court, the crypto community watches closely, recognizing the outcome's potential repercussions on industry standards and consumer protection.

From Meme to Marketplace

Dogecoin, a cryptocurrency that began as a joke, emerged as a leading "meme coin" by market cap, with an image of the Shiba Inu dog becoming synonymous with the whimsy and unpredictability of the crypto market. Its ascension from internet humor to a multi-billion dollar asset has been nothing short of remarkable.

Coinbase, a prominent U.S. exchange, capitalized on Dogecoin's popularity by introducing it to their trading platform, followed by a sweepstakes promotion titled "Trade Doge, Win Doge." However, amidst the fanfare, a participant named David Suski brought forward allegations that would lead to a much more serious discourse on Coinbase's promotional practices.

An ad for Coinbase's dogecoin promo. Source: Milled

A federal judge recently ruled against Coinbase's efforts to settle the dispute via arbitration, thereby setting the stage for a court confrontation. The Ninth Circuit upheld this decision, and now the Supreme Court is poised to examine the intricacies of the case.

Coinbase's legal troubles stem from the sweepstakes rules which, according to Reuters, obfuscated the fact that participants could enter without financial investment—a point of contention that Suski and others claim was deliberately concealed to boost trading and liquidity.

The Allegations Unfold

The class action lawsuit zeroes in on what is described as a hidden mail-in entry method, which participants argue was overshadowed by the promotion's fine print. This strategy, the lawsuit claims, was not just a minor oversight but a calculated move by Coinbase to drive up dogecoin trading, thereby inflating the company's numbers.

California's consumer protection laws are at the forefront of the allegations, with the plaintiffs alleging false advertising and unfair competition. The legal action seeks restitution exceeding $5 million for those who paid the $100 entry fee under the alleged pretense.

In response to the lawsuit, Coinbase initially attempted to move the proceedings to private arbitration, a common practice for resolving disputes quietly and without setting a public legal precedent. The exchange has cited user agreements that include arbitration clauses—a defense they've successfully used in the past—but the specific terms of the sweepstakes have challenged this approach.

When Coinbase added dogecoin to its platform, the coin's value surged, a testament to the exchange's market influence. The sweepstakes added fuel to the fire, triggering a sharp increase in Dogecoin's price.

However, not all publicity has been positive. The crypto community, particularly vocal on platforms like Reddit, has castigated Coinbase for what many see as manipulative marketing tactics. Such community-driven platforms have historically held considerable sway over the reputation and trust in crypto entities.

Crypto Marketing Shifts to Education

As the Supreme Court reviews the case, the outcome is expected to have broad implications.

If the ruling favors greater transparency and disclosure requirements, there might be a shift toward more conservative, legally vetted marketing strategies across the cryptocurrency industry. Companies will likely be wary of potential litigation and increased scrutiny when rolling out new promotions, giveaways or contests.

This environment could give rise to increased self-regulation, with industry leaders working together to develop best practices and standards for marketing cryptocurrencies ethically and legally. While some argue this could stifle innovation, it may also create more sustainable long-term confidence in the market if customers feel protected.

We could also see a pivot toward promotional tactics like gamification, community-building, and education-based engagement - strategies that navigate legal boundaries more cautiously while still capturing interest. The focus would shift from speculative hype-driving incentives to fostering informed crypto users.

Regardless of the final ruling, this case has already opened up larger conversations about the need for transparent marketing and how to balance creativity and compliance in the cryptocurrency space. The future may see promotions designed as much for educating and protecting users as driving volume and engagement. And while the courts may shape the legal landscape, the industry's willingness to self-reflect and adapt will likely play the biggest role.