Coinbase Wins: U.S. Court Orders SEC to Provide "Adequate Explanation" for Lack of Regulatory Guidance
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Coinbase Wins: U.S. Court Orders SEC to Provide "Adequate Explanation" for Lack of Regulatory Guidance
The SEC will have to explain its actions regarding the avoidance of providing clear rules for U.S. crypto asset companies.
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Translation: Blockchain Knight
The U.S. Court of Appeals for the Third Circuit ruled on January 13 that Coinbase achieved a partial victory in its legal dispute with the U.S. Securities and Exchange Commission (SEC).
A panel of judges led by Circuit Judge Ambro held that, under the Administrative Procedure Act (APA), the SEC's reasoning was "arbitrary and capricious," a standard requiring agencies to adequately explain their actions.
The court's opinion also stated that the SEC failed to provide sufficient justification for rejecting Coinbase’s request to establish clearer rules for crypto assets.
As a result, the regulator will now be required to explain its conduct regarding the avoidance of providing clear rules for U.S. crypto asset companies.
Coinbase submitted a petition to the SEC in 2022, requesting new regulations tailored to the unique nature of digital assets such as crypto assets and tokens.
The company argued that the existing securities law framework is "fundamentally incompatible" with blockchain technology and economically impractical.
The exchange highlighted numerous issues with current regulations, including decentralized issuers and the non-investment purposes of many digital assets—such as transaction fees and network governance.
The SEC rejected the petition in December 2023, offering only a brief explanation. The SEC claimed that existing laws are sufficient and indicated its priorities lie elsewhere, including enforcement actions and incremental measures.
Coinbase subsequently filed a petition for review in court, demanding that the SEC provide a more thorough rationale.
In its opinion, the Third Circuit did not order the SEC to initiate rulemaking—a win for the agency’s discretion.
However, the court found that the SEC’s rejection of Coinbase’s petition lacked adequate justification. The court emphasized that while regulators possess broad discretionary authority, their decisions must rest on a "clear logical path."
The court added: "The SEC repeatedly sues crypto asset companies for failing to comply with the law, yet refuses to tell them how to comply. This evasive stance raises serious constitutional concerns and demands due process protections for fairness."
The court further noted that the regulator has failed to provide notice as required by due process or offer meaningful guidance on which crypto assets qualify as securities.
Additionally, the ruling questioned the SEC’s approach toward stablecoins, utility tokens, and major crypto assets such as BTC and ETH.
The decision continued: "Existing rules are ill-suited to blockchain technology, yet the SEC refuses to acknowledge this. Its official silence and contradictory unofficial signals breed uncertainty."
"Crypto asset issuers and exchanges can only cross their fingers and hope the agency doesn’t accuse them."
Coinbase Chief Legal Officer Paul Grewal celebrated the legal win and expressed appreciation for the "thoughtful consideration" of the court.
Jake Chervinsky, Chief Legal Officer at Variant Fund, congratulated the exchange and called it a "major victory," noting that part of the precedent-setting authority comes from a circuit court.
The ruling sets a binding precedent for future crypto asset cases.
Ji Kim, CEO of the Crypto Council for Innovation (CCI), also congratulated Coinbase and highlighted CCI’s amicus brief submitted in the case.
The brief stated: "In the absence of SEC guidance, industry participants must figure out whether they need to register as dealers, and if so, which assets they may handle within registered entities."
Katherine Minarik, Chief Legal Officer at Uniswap Labs, emphasized that the Third Circuit’s two-pronged action compels the SEC to respond appropriately—“as it should.”
Alex Thorn, Head of Research at Galaxy Digital, commented that the ruling is “huge” and “rejects the SEC’s position in countless cases” that no additional rules are needed beyond the existing legal framework.
While the ruling does not compel the SEC to create rules, Thorn pointed out that it requires a full explanation—and said, “That’s a pretty big deal.”
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