Appellate court grants partial win for Coinbase over SEC rules

As an analyst, I’m sharing some insights about a recent legal development. In the ongoing dispute between cryptocurrency exchange Coinbase and the Securities and Exchange Commission (SEC), the U.S. Court of Appeals for the Third Circuit has ruled that the SEC’s decision to withhold rulemaking in this matter was deemed as ‘arbitrary and capricious’. This means the court found the SEC’s decision lacking in reason or explanation, which is a significant ruling in the ongoing debate over cryptocurrency regulations.

In a ruling on January 13 by the Third Circuit Court, a panel of three judges partially granted Coinbase’s petition but refused to compel the Securities and Exchange Commission (SEC) to initiate rulemaking proceedings regarding the clarification of their stance on cryptocurrencies. This action was prompted by Coinbase’s 2022 plea for the SEC to establish regulations that would govern securities traded through digital platforms, potentially including guidelines to determine which digital assets qualify as securities.

In 2023, the SEC rejected Coinbase’s plea, leading the platform to take their case to the Third Circuit. The judges found that the SEC’s decision to dismiss Coinbase’s call for cryptocurrency regulations was deemed as being too brief and lacking in reasoning, making it arbitrary and capricious.

The appellate court’s ruling states that the SEC needs to clarify its stance more effectively; it should strive to avoid providing another vague explanation, as this would be just another addition to a series of unclear explanations they have already given.

“New inventions create new fraud risks, and the agency needs to guard against them. But sporadically enforcing ill-fitting rules against crypto companies that are trying to follow the law goes way beyond fighting fraud. It targets a whole industry and risks de facto banning it. On remand, the SEC must grapple with that problem.”

This is a developing story, and further information will be added as it becomes available.

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2025-01-13 22:17