US judges ask SEC to ‘explain itself’ in rejecting Coinbase’s call for cryptocurrency rules

The US Securities and Exchange Commission must now “carefully explain itself” for its refusal to grant Coinbase’s formal request that the agency write regulations on how the industry evaluates whether cryptocurrency assets are securities, according to a new report. Circuit court ruling on monday.

A three-judge panel of the U.S. Court of Appeals for the Third Circuit sided in a legal rebuke of the securities regulator, in part Coinbase efforts To get the agency to provide legal clarity by writing encryption regulations.

“Rather than force the agency to issue a rule, we order it to explain its decision not to do so,” one judge wrote. “In fact, a rule may not be necessary to resolve the notice issues here; only the agency can unambiguously state its position on cryptoassets.”

Judge Stefanos Bibas added a warning to the SEC: “It should not provide another bad explanation in an already long line of them.”

Legal strike of the agency – the The second setback in a case related to Coinbase In less than a week – he could leave an opportunity for his new leadership. Chairman Gary Gensler, the architect of the SEC’s aggressive approach to cryptocurrency enforcement in recent years, will step down when President-elect Donald Trump is sworn in on January 20. Trump’s chosen replacement, former Commissioner Paul Atkins, may have a chance to use this court request to answer that, yes, his agency will change course on cryptocurrency oversight.

Or even sooner, an acting head of the agency like current Commissioner Mark Ueda, one of the agency’s two current Republican members, may be in a position to begin that task while Atkins awaits the Senate confirmation process.

Monday’s ruling called the SEC’s cryptocurrency actions “arbitrary and capricious,” echoing language from the D.C. Circuit Court of Appeals. When she refused to oppose the agency To the Grayscale app for a Bitcoin (BTC) Spot Trading Fund (ETF).

“Because we believe the SEC’s order was categorical, insufficiently justified, and therefore arbitrary and capricious, we grant Coinbase’s request in part and forward to the SEC for a more complete explanation,” the justices ruled in the case. However, the court did not believe that Coinbase’s arguments justified the clear need to demand new rules from the regulator.

“We are reviewing the decision and will determine next steps as appropriate,” an SEC spokesperson said in response to a request for comment.

“We appreciate the court’s careful consideration,” said Paul Grewal, chief legal officer at Coinbase. Posted on social media site X. His company’s pursuit of this petition with the SEC is one of a number of court battles Coinbase is waging with the agency, including its defense against SEC enforcement actions. Last week, a federal court approved the exchange’s efforts to fast-track a key legal question in the case to an appeals court.

Read more: Coinbase granted a major advance in Gensler’s court fight with the SEC

While the partial ruling against the SEC was strong, one judge added his own harsher view on the agency’s performance in the case.

“If the SEC issues a rule banning crypto assets, it will almost certainly face legal challenges,” Judge Bibas noted. “One might wonder whether an agency whose mission is to maintain fair, orderly, and efficient markets is authorized to ban emerging technology. So the SEC has avoided the rulemaking process by pursuing actual bans through enforcement instead.”