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In a significant legal victory for Coinbase, the U.S. Court of Appeals for the Third Circuit sided with the exchange in its ongoing battle against the U.S. Securities and Exchange Commission (SEC). The court ruled in favor of Coinbase after questioning the SEC’s rejection of the exchange’s request for clearer rules regarding digital asset regulations.
The court deemed the SEC’s reasoning "arbitrary and capricious," urging the agency to provide a more thorough explanation. This ruling adds to a growing list of setbacks the SEC has faced in recent crypto-related cases.
Coinbase’s legal battle with the SEC dates back to 2022 when the exchange petitioned the agency to clarify when digital assets should be classified as securities. This is a crucial issue for the entire crypto industry, which has long sought regulatory clarity.
Coinbase Seeks Clear Regulations
In 2023, the SEC denied Coinbase’s request, arguing that there was insufficient justification to create specific rules. However, the court disagreed, stating that the SEC’s response lacked sufficient reasoning. Judge Thomas Ambro criticized the SEC for issuing a "conclusory" decision, meaning it failed to provide adequate justification for its stance. Additionally, Judge Stephanos Bibas warned that the SEC's strict enforcement approach, without clear rules, could unfairly harm the crypto industry.
The court did not order the SEC to create new regulations but instructed the agency to clarify its position on digital assets. This ruling highlights the broader issues with the SEC’s "regulation by enforcement" strategy, which has left the crypto space uncertain about which rules to follow.
Coinbase’s Chief Legal Officer, Paul Grewal, celebrated the win, tweeting, “We just won our petition for a writ of mandamus at the Third Circuit rebuking the SEC for its order denying our rulemaking petition.” He pointed out that the court’s decision highlighted the SEC’s failure to provide sufficient reasoning for its actions.
