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The U.S. Court of Appeals for the Third Circuit has partially ruled in favor of Coinbase in its legal challenge against the Securities and Exchange Commission. The court found that the SEC’s decision to deny Coinbase’s 2022 petition for rulemaking on crypto and securities regulations was “arbitrary and capricious,” according to Coinbase CLO Paul Grewal Coinbase’s petition requested the SEC establish rules to clarify how securities laws apply to digital assets. The SEC denied the petition in 2023 without providing a comprehensive explanation, prompting Coinbase to appeal. A three-judge panel ruled that the SEC’s denial lacked sufficient reasoning and ordered the agency to reconsider and provide a detailed explanation for its decision. “We properly remand to the SEC to explain itself; it should not give yet another poor explanation in an already-long line of them,” the court stated. While the ruling did not require the SEC to initiate new crypto-specific rulemaking, it emphasized the harm caused by regulatory uncertainty. No clear guidance The court also criticized the SEC for selectively enforcing securities laws without providing clear guidance, warning that this approach risks stifling innovation in the crypto sector. According to the court, sporadic enforcement of regulations that are poorly suited to digital assets targets the entire industry and poses a risk of effectively banning it. This decision adds to the growing judicial scrutiny of the SEC’s stance on digital assets, with courts increasingly calling for greater transparency and clarity in the agency’s approach to crypto regulation. We further appreciate Judge Bibas’ concurrence, in which he speaks forcefully about the looming constitutional concerns “with ex post enforcement without announcing ex ante rules or guidance.” It’s an impressive piece of work. 2/3 — paulgrewal.eth (@iampaulgrewal) January 13, 2025 Coinbase and other crypto firms have long argued that current securities regulations do not…