Coinbase Secures Partial Court Victory as SEC Ordered to Justify Crypto Rule Denial
Key Points:
- The 3rd Circuit Court has ordered the SEC to justify its refusal to establish crypto-specific regulations, a significant boost to Coinbase’s legal battle.
- The court criticized the SEC’s approach to crypto enforcement as “arbitrary” and called for clearer regulatory frameworks for digital assets.
- Ripple’s Chief Legal Officer (CLO) expressed support for Coinbase as the court challenged the SEC’s unclear and selective regulatory enforcement.
The U.S. Court of Appeals for the Third Circuit has ruled partially in favor of Coinbase in its ongoing legal dispute with the Securities and Exchange Commission (SEC). The court deemed the SEC’s rejection of Coinbase’s 2022 petition for crypto-specific regulations as “arbitrary and capricious,” requiring the regulator to provide a more thorough justification.
SEC Must Reconsider Rulemaking Denial
On January 13, 2025, the appellate court ruled that the SEC’s two-page denial in 2023 was insufficiently reasoned, prompting Coinbase to seek judicial intervention. Coinbase’s petition sought clearer guidance on how digital assets should be classified as securities.
In the ruling, Judge Thomas L. Ambro stated:
“We remand this back to the SEC for a proper explanation. It must not issue yet another inadequate justification.” The court emphasized that the SEC’s actions lacked depth and clarity.
Although the court did not mandate the immediate creation of new regulations, it stressed the importance of transparency in the SEC’s decisions, especially as the crypto industry anticipates possible regulatory approvals for XRP and Solana ETFs.
Broader Concerns Over SEC Enforcement
The ruling also questioned the SEC’s overall strategy in regulating the crypto market. Judge Stephanos Bibas raised concerns about the constitutional implications of enforcement without clear regulatory guidance.
He noted:
“New technologies come with new fraud risks, and the agency must address them. However, selectively applying vague rules against crypto companies trying to comply is more damaging than protective—it risks criminalizing the entire sector.”
Judge Bibas urged the SEC to engage more constructively with the cryptocurrency and blockchain industry, rather than relying on selective enforcement.
Ripple CLO Praises Coinbase’s Win
Ripple’s CLO, Stuart Alderoty, commended Coinbase and its CLO, Paul Grewal, for the legal victory. In a tweet, Alderoty criticized SEC Chair Gary Gensler’s regulatory approach, stating:
“As Gensler’s tenure ends, his anti-crypto crusade is unraveling. The court’s ruling confirms what the industry has said for years: selective enforcement is a covert attempt to ban the sector. Shameful.”
Alderoty described the court’s decision as a pivotal moment in the crypto industry’s efforts to push back against excessive regulatory enforcement.
Binance’s Separate Legal Challenges
While Coinbase secured a partial victory, Binance faces its own legal troubles. The U.S. Supreme Court recently declined to hear Binance’s appeal to dismiss a class-action lawsuit accusing it of selling unregistered investment contracts that later lost value.
This dual narrative underscores the growing tension between regulators and major crypto platforms, as the courts become a crucial battleground for the future of the digital asset industry.
