Coinbase Bags Major Victory SEC Lawsuit, Why Does It Matter?

On January 13, 2025, the United States Court of Appeals for the Third Circuit issued a ruling favoring Coinbase in its ongoing legal conflict with the Securities and Exchange Commission (SEC). The court deemed the SEC’s 2023 denial of Coinbase’s petition for crypto-specific regulations “arbitrary and capricious,” requiring the agency to clarify its stance.

Coinbase Vs. SEC Lawsuit On Rulemaking Denial

The petition, submitted by Coinbase in 2022, sought regulatory guidelines tailored to digital assets, particularly regarding their classification as securities. The SEC rejected this request with a brief response, prompting the crypto exchange to challenge the decision in court.

In the judgment, the court stated, “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’s rationale, describing it as “conclusory and insufficiently reasoned.”

While the ruling did not mandate the SEC to draft new regulations immediately, the judges emphasized the need for a detailed justification of its denial. The decision aligns with growing calls for improved regulatory frameworks, especially with recent discussions about the potential approval of ETFs linked to cryptocurrencies such as XRP and Solana.

Judicial Concerns About Enforcement Practices

Judge Stephanos Bibas, in a concurring opinion, highlighted broader issues with the SEC’s approach to crypto regulation. He expressed concerns over the lack of clear regulatory standards and the constitutional implications of the agency’s enforcement practices.

“New inventions give rise to new fraud risks, and the agency has to protect against them,” Bibas wrote. However, he criticized the SEC for selectively applying unclear rules, stating that such actions could have a detrimental impact on the entire crypto sector. He added, “It affects the entire industry and threatens to effectively outlaw it.”

Bibas urged the SEC to address the unique challenges posed by blockchain technology instead of relying on an enforcement strategy that he argued harms the industry.

Ripple’s Legal Officer Comments On Ruling

Stuart Alderoty, Chief Legal Officer at Ripple, commended Coinbase for the legal victory and criticized SEC Chair Gary Gensler’s regulatory approach. Alderoty tweeted, “A federal appeals court has laid bare what the industry has said for years: This selective approach to enforcing securities laws was in fact a (not very) subtle effort to outlaw 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 labeled the decision a critical moment for the crypto industry, calling attention to the growing frustration over the SEC’s enforcement policies. Meanwhile, Coinbase’s CLO Paul Grewal rejoiced in their partial victory against the agency.

Also Read: JPMorgan CEO Says, “Bitcoin Has No Intrinsic Value”