Court Challenges SEC’s Rejection of Coinbase’s Call for Clear Crypto Rules

The U.S. Court of Appeals for the Third Circuit has expressed doubts regarding the SEC's justification for denying Coinbase's appeal for clearer guidelines on cryptocurrency regulations.

A couple of months ago, Coinbase requested that the SEC formulate specific rules regarding digital securities, particularly seeking clarity on which cryptocurrencies should be classified as securities. The SEC’s refusal to address this request in late 2023 led Coinbase to pursue legal action.

Eugene Scalia, leading Coinbase’s legal team, contended that the SEC’s rejection lacked adequate explanation, especially in light of the agency’s escalating enforcement actions against cryptocurrency firms. Paul Grewal, Coinbase’s chief legal officer, remarked that the SEC’s decision appeared arbitrary and contradicted its strong regulatory approach.

Judges during the proceedings voiced their concerns over the unclear regulatory landscape for the crypto sector, noting the difficulty companies face in adhering to rules that do not accommodate decentralized systems. Judge Stefanos Bibas criticized the SEC for prioritizing enforcement over establishing comprehensive regulations.

In its defense, the SEC cited other pressing matters that took precedence. Earlier, in June 2023, Coinbase was charged by the SEC for functioning as an unregistered exchange, broker, and clearing agency. This court hearing could represent a minor win for Coinbase amid its ongoing legal challenges with the SEC.