Source: Blockchain Knight

In a ruling on January 13, the U.S. Court of Appeals for the Third Circuit ruled that Coinbase achieved a partial victory in its legal dispute with the U.S. Securities and Exchange Commission (SEC).

The panel, led by Circuit Judge Ambro, found the SEC’s reasoning to be “arbitrary and capricious” under the Administrative Procedure Act (APA), a standard that requires agencies to fully explain their actions .

The court’s opinion also mentioned that the SEC’s decision to reject Coinbase’s application for clearer Crypto asset rules was not sufficiently justified.

Therefore, regulators will have to explain their avoidance of providing clear rules for U.S. Crypto asset companies.

Coinbase filed an application with the SEC in 2022 to adopt new rules based on the unique nature of digital assets such as Crypto assets and tokens.

The company believes that the existing securities law framework is “fundamentally incompatible” with blockchain technology and is economically impractical.

The exchange pointed out a number of existing issues: decentralized issuers, non-investment uses of many digital assets (including transaction fees and network governance), etc.

SEC rejected this application in December 2023, providing only a brief explanation. The SEC noted that existing laws are sufficient and believes its priorities lie elsewhere, including enforcement actions and progressive measures.

Coinbase subsequently filed a review application with the court, requesting the SEC to provide more detailed reasons.

In its opinion, the Third Circuit did not order the SEC to initiate a rulemaking, a victory for the agency’s discretion.

However, the court held that the SEC lacked sufficient reasons to reject Coinbase’s application.

The court emphasized that while regulators have broad discretion, their decisions must be based on a "clear logical path."

The court added: “The SEC has repeatedly sued Crypto Asset Company for not complying with the law, but did not tell them how to comply with the law. This cunning attitude has caused serious constitutional issues, and due process should be used to ensure fairness. .”

The court also said the regulator provided no notice of due process requirements or meaningful guidance on which Crypto assets were considered securities.

In addition, the ruling also raised questions about how the SEC views stablecoins, utility tokens, and major crypto assets such as BTC and ETH.

The ruling added: "Existing rules are inappropriate for blockchain technology, but the SEC refuses to acknowledge this. Its official silence and conflicting unofficial signals breed uncertainty."

"CrYPTO asset issuers and exchanges can only pray with their fingers that the agency will not accuse them. ”

Paul Grewal, chief legal officer of Coinbase, shared the legal victory and expressed appreciation for the “court’s careful consideration.”

Jake, chief legal officer of Variant Fund Chervinsky congratulated the exchange and considered it a "significant victory" as the partial authorization came from the circuit court.

The ruling sets a binding precedent for future Crypto Asset cases.

Crypto Asset Innovation Council (CCI) CEO Ji Kim also congratulated Coinbase and highlighted an amicus brief filed by CCI in the case, which stated: “In the absence of SEC guidance, industry players must figure out what to do. Be clear about whether they must register as a dealer and, if so, what assets they can handle in a registered entity. "

Uniswap Labs Chief Legal Officer Katherine Minarik emphasized that the two actions of the Third Circuit prompted the SEC to respond appropriately, "which is what it should be."

Galaxy Digital Alex, head of research at Galaxy Digital Thorn commented that the ruling is "tremendous" and "rejects the SEC's position in numerous cases" that no rulemaking is needed beyond the existing legal framework. The ruling did not require the SEC to write a rule, but Thorn noted that it would require a full explanation, saying "it's a pretty big question."