George Miller
On January 13, 2025, the Third Circuit Court of Appeals made a favorable decision for Coinbase in its legal battle against the Securities and Exchange Commission (SEC). The court found the SEC’s 2023 rejection of Coinbase’s request for regulations specific to cryptocurrency to be “arbitrary and capricious,” directing the agency to provide further clarification.
Overview of the Coinbase and SEC Dispute
Coinbase filed a petition in 2022, asking for regulatory guidance on digital assets, particularly concerning their classification as securities. The SEC’s brief denial led Coinbase to contest the ruling in court.
In its decision, the court noted, “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 criticized the regulator for its vague reasoning, labeling it “conclusory and insufficiently reasoned.”
Although the ruling does not require the SEC to produce new regulations right away, the judges stressed the importance of a well-reasoned explanation for its denial. This decision aligns with the increasing demand for enhanced regulatory clarity, particularly amidst discussions about the potential approval of cryptocurrency-linked ETFs, such as XRP and Solana.
Concerns Raised About SEC Enforcement Methods
Judge Stephanos Bibas, supporting the decision, raised concerns regarding the SEC’s overall strategy in crypto regulation. He noted the absence of clear rules and the constitutional implications of the agency’s enforcement methods.
“New innovations bring new risks of fraud, and the agency must safeguard against them,” Bibas stated. However, he criticized the SEC for applying vague regulations inconsistently, emphasizing that this could harm the crypto industry as a whole. He remarked, “It affects the entire industry and threatens to effectively outlaw it.”
Judge Bibas urged the SEC to confront the unique difficulties posed by blockchain technology rather than relying on enforcement tactics that may undermine the sector.
Ripple’s Legal Officer Responds to Ruling
Stuart Alderoty, Chief Legal Officer of Ripple, praised Coinbase for its court victory and criticized SEC Chair Gary Gensler’s regulatory practices. Alderoty expressed on Twitter, “A federal appeals court has exposed what the industry has claimed for years: This selective enforcement approach toward securities laws was essentially an effort to eliminate the entire industry. Shameful.”
We just won our petition for a writ of mandamus at the Third Circuit. Rebuking @SECGov for its order denying our rulemaking petition, the Court held that the “SEC’s order was conclusory and insufficiently reasoned, and thus arbitrary and capricious, we grant Coinbase’s petition…
— paulgrewal.eth (@iampaulgrewal) January 13, 2025
Alderoty called the ruling a pivotal moment for the crypto world, highlighting rising dissatisfaction with the SEC’s enforcement strategies. Meanwhile, Coinbase’s CLO Paul Grewal celebrated their partial triumph against the agency.