In the latest bout between the SEC and cryptocurrency, a US court is demanding the regulator explain why it denied Coinbase’s request for crypto-specific regulations. The U.S. Securities and Exchange Commission is now under a federal court order to offer a full explanation for why the agency refused to offer clear rules for crypto securities.

A three-judge panel for the U.S. Court of Appeals for the Third Circuit, in a legal rebuke of the securities regulator, partially sided with Coinbase’s effort to get the agency to offer legal clarity by writing crypto regulations this week. “Rather than force the agency to make a rule, we order it to explain its decision not to,” one of the judges wrote. “Indeed, a rule may not prove necessary to solve the notice problems here; the agency could just state its position on crypto assets unequivocally.” Judge Stephanos Bibas added: “It should not give yet another poor explanation in an already-long line of them.”

US Court Puts SEC Under Microscope for “Capricious” Crypto Regulation

The demand comes in the final week of Chair Gary Gensler’s tenure, who will step down as SEC Chair next week. In line to replace him is Paul Atkins, a Republican chosen by incoming President Donald Trump. Atkins is expected to lead a new SEC that will have much looser restrictions on the cryptocurrency industry, opening the door to clearer regulations.

Also Read: Donald Trump to Issue Executive Crypto Policy Orders on First Day in Office

Additionally, the Monday ruling called the SEC’s crypto actions “arbitrary and capricious.”Because we believe the SEC’s order was conclusory and insufficiently reasoned, and thus arbitrary and capricious, we grant Coinbase’s petition in part and remand to the SEC for a more complete explanation,” the judges ruled.

Following Trump’s victory in the 2024 presidential election, the cryptocurrency sector will be under the spotlight. Specifically, the SEC was to undergo a massive shift with the new administration easing crypto regulations. Atkins’ appointment and Gensler’s upcoming departure will begin that long-awaited shift for those in the crypto industry.

“We appreciate the court’s careful consideration,” said Coinbase Chief Legal Officer Paul Grewal, in a posting on X. The SEC has yet to comment on the new demand by the US court.

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