The Legal Battle Between Coinbase and the SEC: A Partial Victory

The US Court of Appeals for the Third Circuit granted Coinbase a partial victory in its legal dispute with the Securities and Exchange Commission (SEC) in a Jan. 13 ruling. The panel of judges, led by Circuit Judge Ambro, deemed the SEC’s reasoning “arbitrary and capricious” under the Administrative Procedure Act (APA), a standard requiring agencies to adequately explain their actions.

Seeking clear rules

• Coinbase petitioned the SEC in 2022 to adopt new rules tailored to the unique nature of digital assets like cryptocurrencies and tokens.
• The exchange pointed to challenges such as decentralized issuers and the non-investment uses of many digital assets.
• The SEC rejected the petition in December 2023, offering only a brief explanation.

Partial win

• In its opinion, the Third Circuit stopped short of ordering the SEC to initiate rulemaking, a victory for the agency’s discretion.
• The court emphasized that while regulatory agencies have wide latitude, their decisions must be grounded in a “discernible path” of logic.

Community welcomes ruling

• Coinbase’s chief legal officer, Paul Grewal, shared the legal win and appreciated the “court’s careful consideration.”
• Jake Chervinsky, chief legal officer of Variant Fund, congratulated the exchange and considered the development a “big win.”
• Ji Kim, CEO of the Crypto Council for Innovation (CCI), also congratulated Coinbase and highlighted an amicus brief filed by CCI in the case.

Opinions on the Ruling

• Katherine Minarik, chief legal officer at Uniswap Labs, highlighted that two actions in the Third Circuit prompted a proper SEC response — “as it should.”
• Alex Thorn, head of research at Galaxy Digital, commented that the ruling was “huge” and “a repudiation of the SEC’s stance across myriad cases” about no rulemaking being required in addition to the existent legal framework.