The federal appeal court has favored Coinbase, strictly condemning the Securities and Exchange Commission (SEC) for its refusal to state clarification about regulations for cryptocurrency.
According to the info issued today (Monday), Judges criticized how the SEC is handling the matter, calling its disapproval of Coinbase’s 2022 petition an “arbitrary and capricious behavior by SEC.” The decision given by the commission has put forward a lot of questionnaires about the SEC’s attitude
On the 13th of January, a panel consisting of 3 renowned judges sent the case to the Security and Exchange Commission, ordering it to issue a more thorough justification for not approving the petition of Coinbase 2022. The petition states that there should be transparent rules for regulating securities traded via digital methods.
Judge Stephanos Bibas rectifies in a literature opinion about the need for regulatory clarification, stating:
“New inventions create new fraud risks, and the agency needs to guard against them. But sporadically enforcing ill-fitting rules against crypto companies that are trying to follow the law goes way beyond fighting fraud. It targets a whole industry and risks de facto banning it.”
On the 13th of January 2025, Paul Grewal, Chief Legal Officer of Coinbase, stated on his X account (Twitter) that the United States Court of Appeals for the Third Circuit pointed out that the Securities and Exchange Commission (SEC) exhibited ‘very arbitrary regulatory behavior’ highlighting the establishment of rules and regulations for the cryptocurrency market.
He further said, “The court has ordered the SEC to provide a more detailed explanation for its reasons for rejecting Coinbase’s rulemaking petition.” The Securities and Exchange Commission (SEC) has adopted a multitude of enforcement actions concerning the purchase and sale of crypto assets.
Kentucky v. SEC, filed in November 2024, 18 states and the DeFi Education Fund have put forward an action against the SEC alleging that its enforcement actions are affecting the secondary-market sales of crypto assets, unlawfully targeting state regulatory authority. A lawyer for the SEC asserts that there are no requirements for the new rule regarding Crypto, and previous regulations are quite sufficient for the opponent.
SEC lawyer Ezekiel Hill added “If Coinbase wants to arrange its business in a way that does not comply with the existing regulatory framework, that does not establish a right to have the framework adapted to meet their business”
After hearing from both parties, the appeals court judges also noticed that the SEC does have discretion and discrimination in rulemaking policies. They also questioned why cryptocurrency is not included in their rules and why new policies are not being established for Crypto.
The crypto industry authenticated that it operates in a confinement of regulatory authority not supervised by existing U.S. Security regulations, and that there is a need to establish new legislation and laws to regulate this field
Coinbase’s Chief Legal Officer Paul Grewal clearly reverberated the point of view, emphasizing the importance of addressing conflicting legal interpretations. “The Howey Test,” which is being practiced to find whether an asset qualifies as a security or not, is still central to the disputes between SEC and Coinbase. The SEC reports that the tokens being traded on Coinbase, like SOL, ADA, and MATIC, are securities
