The United States Securities and Exchange Commission must now “explain” itself in detail for refusing to grant Coinbase’s formal request. Monday.
A three-judge panel of the U.S. Court of Appeals for the Third Circuit, in a legal rebuke of the securities regulator, partially sided with Coinbase’s efforts to get the agency to offer clarity legal by drafting cryptographic regulations.
“Rather than force the agency to establish a rule, we order it to explain its decision not to do so,” one of the judges wrote. “Indeed, a rule might not be necessary to resolve the reporting issues here; the agency could simply state unequivocally its position on crypto assets.”
Judge Stephanos Bibas added a warning to the SEC: “It should not give yet another bad explanation among an already long list of them.”
The legal blow to the agency — the second setback in a Coinbase-related case in less than a week — could leave an opening for its new leadership. Chairman Gary Gensler, the architect of the SEC’s intensive approach to cryptocurrency enforcement in recent years, is resigning as President-elect Donald Trump is sworn in on January 20. Trump’s chosen replacement, former Commissioner Paul Atkins, might have a chance to use that. The court asks to answer that, yes, its agency will change its course when it comes to crypto oversight.
Or, even sooner, an acting chair such as current Commissioner Mark Uyeda, one of two current Republican members of the agency, might be able to start the process while Atkins awaits a confirmation process for the Senate.
Monday’s ruling called the SEC’s crypto actions “arbitrary and capricious,” echoing the language of the D.C. Circuit Court of Appeals when it rejected the agency’s opposition to the request for Grayscale for a Bitcoin (BTC) spot exchange-traded fund (ETF).
“Because we believe the SEC’s order was conclusive and insufficiently reasoned, and therefore arbitrary and capricious, we grant Coinbase’s motion in part and remand to the SEC for a fuller explanation,” the judges ruled in the case. . However, the circuit court did not find that Coinbase’s arguments justified the clear need to require new rules from the regulator.
“We are reviewing the decision and will determine next steps, if appropriate,” an SEC spokesperson said in response to a request for comment.
“We appreciate the court’s careful consideration,” Paul Grewal, Coinbase’s chief legal officer, said in a post on social media site X. His company’s pursuit of the SEC petition is one of several legal battles Coinbase is waging with the agency, including its defense against an SEC enforcement action. Last week, a federal court granted the exchange’s efforts to expedite a key legal issue in the case before an appeals court.
Read more: Coinbase obtained significant breakthrough in Gensler’s SEC legal dispute
Although the partial ruling against the SEC was strong, one of the judges added his most blistering take on the agency’s performance in the case.
“If the SEC were to promulgate a rule banning crypto assets, it would surely face legal challenges,” Justice Bibas noted. “One might question whether an agency whose mission is to maintain fair, orderly, and efficient markets is authorized to ban an emerging technology. …The SEC therefore circumvented the rulemaking process by pursuing a de facto ban by the through the application.”
