Coinbase Scores Partial Win as Court Slams SEC’s Crypto Rules

According to a court ruling on January 13, the crypto trading platform Coinbase won a partial victory in its legal battle with the US Securities and Exchange Commission (SEC). 

The case revolves around Coinbase’s petition for the SEC to clarify its rules concerning the application of federal securities laws to digital assets, including cryptocurrencies.

Judge Orders SEC to Justify Denial of Coinbase’s Request

The US Court of Appeals for the Third Circuit found the SEC’s denial of Coinbase’s petition to be insufficiently reasoned.

“SEC’s order was conclusory and insufficiently reasoned, and thus arbitrary and capricious, we grant Coinbase’s petition in part and remand to the SEC for a more complete explanation. But we decline at this stage to order the agency to institute rulemaking proceedings,” the ruling said.

It remanded the case to the SEC, instructing the agency to provide a more detailed explanation for its decision. However, the court stopped short of ordering the SEC to initiate formal rulemaking proceedings.

Coinbase petitioned the SEC in 2022 to create specific rules addressing how federal securities laws apply to digital assets. The company argued that the existing legal framework does not properly account for digital assets’ unique nature, making it difficult to ensure compliance. 

Coinbase claims that the SEC’s failure to clearly define when a digital asset is considered a security has increased the confusion. Moreover, the agency’s inconsistent positions on the matter have made the situation worse.

The SEC denied Coinbase’s petition in a brief and largely unexplained response. The regulator stated that it disagreed with Coinbase’s concerns and had higher-priority issues to focus on. The SEC also suggested that it might prefer to address the issue incrementally.

This prompted Coinbase to challenge the SEC’s decision, filing a petition for judicial review.

“The SEC repeatedly sues crypto companies for not complying with the law, yet it will not tell them how to comply,” the court noted.

This court ruling marks a significant moment in the ongoing legal and regulatory struggle surrounding cryptocurrencies and digital assets. 

Will Coinbase’s Win Help Ripple in its Battle With SEC?

Interestingly, online discussions have linked the latest setback for the SEC to its ongoing legal battle with Ripple. Many hope that this ruling could favor Ripple.

“Ripple V SEC To Be Dropped. Inside sources predict that the Coinbase ruling will favor Ripple,” wrote a crypto enthusiast on X.

Ripple’s legal chief, Stuart Alderoty, also joined in on the celebratory mode as he congratulated Coinbase on its win.

“In Gensler’s final days, his anti-crypto crusade is imploding, and a federal appeals court has laid bare what the industry has said for years: his selective enforcement of securities laws was a (not so) covert attempt to ban the industry outright. Shameful,” Stuart Alderoty said.

The SEC now faces the task of explaining its stance. It is yet to be seen how the agency will address the growing demand for clarity in crypto regulation.