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The U.S. Securities and Exchange Commission (SEC) has been put on blast by a federal appeals court, which has demanded the agency justify its decision to block Coinbase’s 2022 petition for clear crypto regulations. 
The U.S. Court of Appeals for the Third Circuit <a href="https://aboutblaw.com/bgQt" rel="nofollow noopener" target="_blank">called</a> the SEC’s move “arbitrary and capricious,” signaling that the regulator might have bitten off more than it can chew with its aggressive stance against the crypto industry. 
Paul Grewal, Coinbase’s Chief Legal Officer, shared the news, saying, “We just won our petition for a writ of mandamus at the Third Circuit.” 
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"> 
 We just won our petition for a writ of mandamus at the Third Circuit. Rebuking <a href="https://twitter.com/SECGov?ref_src=twsrc%5Etfw" rel="nofollow noopener" target="_blank">@SECGov</a> for its order denying our rulemaking petition, the Court held that the "SEC’s order was conclusory and insufficiently reasoned, and thus arbitrary and capricious, we grant Coinbase’s petition… 
 — paulgrewal.eth (@iampaulgrewal) <a href="https://twitter.com/iampaulgrewal/status/1878860619895685283?ref_src=twsrc%5Etfw" rel="nofollow noopener" target="_blank">January 13, 2025</a>
</blockquote> 
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script> 
He highlighted the court’s rebuke of the SEC’s “insufficiently reasoned” denial of Coinbase’s petition, adding that Judge Stephanos Bibas had flagged looming constitutional concerns over the SEC’s enforcement tactics. 
According to Paul, the decision sends a strong message: regulators can’t simply enforce laws without providing clear rules upfront. 
<h3 id="span-style-font-weight-400-judges-call-out-the-sec-span">Judges call out the SEC</h3> 
The court’s ruling stopped short of forcing the SEC to draft specific rules for cryptocurrency but made it clear that the agency owes an explanation. Coinbase’s original petition sought clarity on a crucial question: when do digital assets qualify as securities? 
Without clear guidance, <a href="https://www.cryptopolitan.com/moonpay-acquires-helio-175m-crypto-payments/">crypto companies</a> have been left in a legal gray zone, navigating unpredictable enforcement actions rather than established rules. 
Judge Bibas, known for his blunt rulings, criticized the agency’s reliance on enforcement without prior guidance, pointing out that new technologies like crypto come with unique risks that require proactive regulation—not just retroactive penalties. 
This isn’t the first time the <a href="https://www.cryptopolitan.com/ripple-cto-dives-into-sec-case-and-silence/">SEC</a> has been called out for its handling of the crypto industry, but the Coinbase case could mark a turning point. 
By forcing the SEC to explain its reasoning, the court has essentially demanded more transparency from the agency, which has long maintained that most cryptocurrencies, apart from Bitcoin, are securities and therefore fall under its jurisdiction. 
<h3 id="span-style-font-weight-400-coinbase-fights-on-multiple-fronts-span">Coinbase fights on multiple fronts</h3> 
While Coinbase celebrates this partial victory, the company is still deep in the trenches of another legal battle with the SEC. Last year, Judge Katherine Failla denied Coinbase’s motion to dismiss the SEC’s lawsuit against it, setting the stage for a high-stakes court fight over whether crypto tokens listed on Coinbase’s platform qualify as <a href="https://www.cryptopolitan.com/draftkings-lawsuit-advances-in-the-us/">securities.</a> 
Failla’s ruling leaned heavily on the Howey Test, a decades-old legal standard used to determine whether an asset is a security. She rejected Coinbase’s argument that crypto should be considered a “major question” of economic significance, which would limit the SEC’s authority. 
Instead, she sided with the agency’s claim that many of the cryptocurrencies offered on Coinbase’s platform, such as Solana, are investment contracts. 
However, Failla’s ruling wasn’t the end of the road. She granted <a href="https://www.cryptopolitan.com/ark-invest-sells-3-9m-worth-of-coinbase/">Coinbase</a> permission to file an interlocutory appeal, allowing the company to challenge her decision before a final verdict. 
This appeal is important because it could fast-track a definitive ruling on whether crypto tokens are securities, potentially reshaping how the entire industry operates. 
“We appreciate the Court’s careful consideration,” Paul said after the decision. “On to the Second Circuit we go.” 
The appeal could add to the complexity. While some judges, like Failla, appear to back the SEC’s arguments, others have pushed back. For instance, the judge overseeing the Ripple case ruled that not all transactions involving XRP qualify as securities. 
The SEC’s enforcement-first strategy has been a source of frustration for the crypto industry, which has repeatedly called for clear guidelines. Under Chair Gary Gensler, the agency has ramped up its crackdown on crypto companies, bringing high-profile lawsuits against <a href="https://www.cryptopolitan.com/ripple-cto-warns-xrp-community-scam/">Ripple,</a> Coinbase, and other major players. 
Gensler has argued that most crypto tokens are securities and that companies are violating the law by failing to register them with the SEC. 
From Zero to Web3 Pro: Your 90-Day <a href="https://www.cryptopolitan.com/crypto-career-launchpad-waitlist/?utm_source=cryptopolitan&amp;utm_medium=banner&amp;utm_campaign=ccl-waitlist-3" target="_blank">Career Launch Plan</a>

SEC ordered to explain itself over blocking Coinbase’s call for crypto rules

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