Tanju Akbıyık 
The U.S. Court of Appeals for the Third Circuit has questioned the Securities and Exchange Commission’s (SEC) reasoning for denying Coinbase’s request for clearer crypto regulations. Back in July 2022, Coinbase asked the SEC to propose rules that would clarify which crypto assets should be classified as securities. However, the SEC rejected this request in late 2023, prompting Coinbase to take legal action.
Reason for Rejection and Court’s Objections
The court expressed concerns over the SEC’s explanation for rejecting Coinbase’s request for crypto regulation. Judge Thomas Ambro stated that the regulator’s reasoning was “nearly empty.” Ambro emphasized that the SEC should present a concrete argument in response to Coinbase’s regulatory request. “There seems to be an argument that this is almost an empty claim,” the judge remarked, underscoring the difficulty in understanding why the regulator refused to establish new rules.
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Coinbase’s Defense
Coinbase criticized the SEC’s two-page rejection as insufficient, calling it arbitrary, especially considering the increased enforcement actions against crypto companies. The company’s attorney, Eugene Scalia, argued that the SEC failed to explain how existing rules make it impossible for digital asset companies to comply. “The Commission offered no explanation for rejecting Coinbase’s claim that existing SEC rules make it impossible for digital asset companies to register and operate as intended,” Scalia said.
Impact on Crypto Regulations and the Industry
The court noted that the lack of a clear regulatory framework for the crypto industry poses significant challenges for both investors and businesses. The judges expressed frustration over the SEC’s inadequate efforts to establish rules tailored to crypto assets and decentralized protocols. Judge Stephanos Bibas pointed out that the SEC’s frequent enforcement actions indicate that it has the time and resources to create appropriate regulations. “If this was the first or second enforcement action, I’d accept it, but we’re way past that point,” Bibas commented.
SEC’s Response and Future Outlook
In defense of its decision, the SEC argued that other ongoing initiatives and priorities influenced the timing of its rulemaking process. Additionally, in June 2023, Coinbase was charged with operating as an unregistered securities exchange, broker, and clearing agency. This highlights the SEC’s growing efforts to tighten control over crypto assets and the regulatory uncertainty that continues to impact the industry.
Conclusion
Coinbase’s request for clearer regulations and the court’s questioning of the SEC’s rejection marks a pivotal moment for the crypto industry. As the market eagerly awaits more regulatory clarity and guidance, this court case could significantly shape the future of crypto regulations and serve as a turning point for the sector’s players.
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