Kentucky has officially dismissed its lawsuit against Coinbase over the exchange’s staking services, becoming the third U.S. state in recent months to roll back legal action against the company.

The Kentucky Department of Financial Institutions filed a joint stipulation of dismissal on March 31, ending its case against Coinbase for offering unregistered securities through its staking program.

This follows a growing trend of state-level regulatory reversals. Vermont withdrew its lawsuit against Coinbase on March 14, citing the U.S. Securities and Exchange Commission’s (SEC) own decision to drop its federal case in February.

South Carolina quickly followed suit, dismissing its case on March 27 after local users reportedly lost around $2 million in staking rewards due to the ban.

Paul Grewal, Coinbase’s Chief Legal Officer, responded to Kentucky’s move on social media, urging Congress to implement a unified federal market structure for crypto.

He also pointed out bipartisan agreement within Kentucky that staking and mining should not be classified as securities.

While three states have now reversed their stance, seven others, including California, New Jersey, Illinois, Washington, Alabama, Maryland, and Wisconsin, still have pending legal actions against Coinbase.

Kentucky’s Bitcoin Rights Bill

Kentucky’s decision to drop the lawsuit against Coinbase aligns closely with its recent legislative push toward pro-crypto policies.

Just days before the case was dismissed, Governor Andy Beshear signed House Bill 701, also known as the “Bitcoin Rights” bill, into law.

This bill, which passed unanimously in both the House and Senate, provides significant protections for crypto users and businesses in the state.

Among its key provisions, HB701 enshrines the right for individuals to self-custody digital assets, run blockchain nodes, and conduct transactions without the threat of discriminatory regulation.

Additionally, the bill shields mining operations from restrictive zoning laws and prevents crypto staking from being classified as a securities offering.

Kentucky is also considering another bill that would allow the State Investment Commission to allocate up to 10% of the state’s excess reserves into Bitcoin and other digital assets.

This move would position Kentucky alongside states like Oklahoma, Missouri, and Arizona, which are exploring similar crypto investment strategies.

Oklahoma, for instance, recently advanced its Strategic Bitcoin Reserve Act (HB 1203), which authorizes state investment in Bitcoin.

Missouri and Arizona have also introduced bills that seek to establish digital asset reserves, reflecting a growing nationwide trend of state-level crypto adoption.

Broader Implications for U.S. Crypto Regulation

Kentucky’s dismissal of the lawsuit and the passage of its Bitcoin Rights bill are part of a larger shift in how states approach crypto regulation.

The move shows increasing resistance to the SEC’s aggressive enforcement tactics, with multiple states opting instead for legislative clarity rather than punitive actions against crypto firms.

The trend began with the SEC’s voluntary dismissal of its lawsuit against Coinbase in February.

Vermont and South Carolina quickly followed suit, dropping their cases against Coinbase and further weakening the regulatory assault on staking services.

South Carolina’s decision to drop its case coincided with the introduction of the Strategic Digital Assets Reserve Act, which proposes that the state allocate up to 10% of certain funds into cryptocurrencies like Bitcoin.

This bill, filed by Rep. Jordan Pace, authorizes the state treasurer to hold up to one million BTC in reserves, marking a significant step toward state-level crypto adoption.

With several state legislatures now actively considering bills to integrate Bitcoin into their financial strategies, the legal battles against Coinbase and similar companies may continue to weaken in favor of clearer, more structured crypto regulations at both state and federal levels.

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