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In 2022, Coinbase requested that the U.S. Securities and Exchange Commission (SEC) establish clear regulations for cryptocurrency, including guidelines on which digital assets qualify as securities. The SEC denied this request in late 2023, leading Coinbase to appeal to the U.S. Court of Appeals for the Third Circuit to compel the regulator to provide a more substantive response.
On September 23, 2023, the court’s panel of judges questioned the SEC’s minimal explanation for rejecting Coinbase’s petition, with Judge Thomas Ambro suggesting the denial was nearly “vacuous.” Ambro noted that while the SEC doesn’t need to offer an exhaustive rationale, it must provide some meaningful reasoning for its decision.
Coinbase’s legal team argued that the SEC’s two-page denial was insufficient, especially in light of the regulator’s continuous enforcement actions against crypto companies. Eugene Scalia, Coinbase’s counsel, stated that the SEC’s rejection lacked any justification for why current rules are inadequate for the digital asset industry.
Coinbase’s chief legal officer, Paul Grewal, echoed these frustrations, calling out the SEC for an arbitrary enforcement campaign while failing to provide clear guidance for the crypto industry. Grewal criticized the SEC’s refusal to offer a reasonable explanation for its brief denial.
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The judges also expressed concern about how the crypto industry can comply with outdated rules that don’t fit the decentralized nature of digital assets. Judge Stephanos Bibas remarked that while the SEC has been actively enforcing actions against crypto firms, it has neglected to offer clear regulatory guidance. He suggested that the SEC’s repeated actions indicate interest in crypto but without providing the necessary higher-level regulations.
In its defense, the SEC cited ongoing efforts and other priorities as the reasons for denying Coinbase’s request for rulemaking at this time. However, the agency has faced significant pushback for its approach, particularly after charging Coinbase in June 2023 with operating as an unregistered securities exchange, broker, and clearing agency.
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