The United States Court of Appeals for the Third Circuit has partially ruled in favor of Coinbase in its legal battle with the Securities and Exchange Commission (SEC).
The court found the SEC’s rejection of Coinbase’s petition for cryptocurrency-specific regulations to be “arbitrary and capricious,” requiring the regulator to provide a clearer explanation.
US SEC Ordered to Reconsider Denial of Rulemaking
The appellate court delivered the decision on January 13, 2025, to find that the SEC was unjustified in its denial of Coinbase’s petition of 2022. Coinbase has asked for new rules that would address digital assets specifically, including how they should be assessed as to whether they are securities. In 2023, the SEC denied the petition with a brief two-page response, and that is why Coinbase has turned to the court.
In its opinion, the court said:
“We properly remand this back to the SEC to explain itself, it should not come up with yet another poor explanation in a long line of such.” Judge Thomas L. Ambro pointed out that the SEC’s actions were “conclusory and insufficiently reasoned, and thus arbitrary and capricious.”
The judges did not press the SEC to start writing new rules at that moment, but the judges insisted that the agency should articulate its decision in greater detail. This ruling comes amid recent expectations of better crypto regulations that may even lead to an approval of XRP and Solana ETF.
Broader Concerns About SEC’s Enforcement Strategy
The court’s ruling also raised questions about the SEC’s current policies on regulating the cryptocurrency market. Judge Stephanos Bibas in his concurring opinion raised concerns on the constitutional aspects of enforcement in the absence of clear regulatory standards.
He wrote,
“New inventions give rise to new fraud risks and the agency has to protect against them. But occasionally and selectively applying poorly conceived rules against crypto companies that are at least attempting to act legally is something much darker than just combating fraud. It affects the entire industry and threatens to effectively outlaw it.”
Bibas called on the SEC to grapple with the issues arising from cryptocurrencies and blockchain rather than using an enforcement-by-exception approach that he argued is damaging to the industry.
Ripple CLO Praises Coinbase Victory
Stuart Alderoty, Ripple’s Chief Legal Officer, congratulated Coinbase and its Chief Legal Officer, Paul Grewal, on the partial victory. In a tweet, Alderoty came out against Gensler’s approach to regulating the crypto industry at the US SEC ahead of new Trump adminastration taking over.
“In Gensler’s final days, his anti-crypto crusade is imploding, and a federal appeals court has laid bare what the industry has said for years: This selective approach to enforcing securities laws was in fact a (not very) subtle effort to outlaw the entire industry. Shameful.”
Alderoty pointed out that the court’s opinion stated, and this opinion is shared by many in the cryptocurrency community for years. The court’s ruling, he added, is a landmark in the industry’s struggle against the authorities in the courts.
While Coinbase celebrates its partial victory, Binance is facing legal hurdles of its own. The U.S. Supreme Court recently declined to hear Binance’s appeal to dismiss a class-action lawsuit brought by investors. The lawsuit alleges that Binance and its founder, Changpeng ‘CZ’ Zhao, sold unregistered investment contracts, which later decreased in value.
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