U.S. Court Demands Clear Response from SEC to Coinbase

A Partial Victory for Coinbase in Its Battle with the SEC

On Monday, the Third Circuit Court of Appeals marked a significant milestone by demanding the SEC to provide a detailed explanation for its refusal to establish clear crypto rules. This decision follows a complaint filed by Coinbase, where the crypto company asks the regulator to define a legal framework for determining whether a crypto asset can be classified as a security.

The ruling highlights the problematic approach of the SEC towards cryptocurrencies. In this context, Judge Stephanos Bibas stated:

“Rather than forcing the agency to establish a rule, we order it to explain why it chose not to do so.”

He added that the SEC must :

• stop providing insufficient justifications,
• avoid offering another poor explanation in a long line of unsatisfactory responses.

This decision could mark a significant turning point within the cryptosphere. The industry has been demanding clear crypto rules for years to evolve in compliance with the law. According to experts, the lack of a precise framework hinders innovation in a sector that has attracted billions of dollars in investments in recent years.

A Context Marked by Gary Gensler’s Departure

The ruling comes at a pivotal moment for the SEC, with the impending departure of Gary Gensler, the controversial chairman of the U.S. crypto regulatory agency.

Known for his strict stance and aggressive enforcement strategy, Gensler has initiated over 100 legal actions against crypto companies in less than two years, including Coinbase.

Scheduled for January 20, his departure coincides with the appointment of Paul Atkins, a former Republican commissioner. With Atkins, the crypto community anticipates a more lenient approach to digital assets.

Analysts believe this leadership change could provide an opportunity to redefine the SEC’s strategy, especially in response to the court’s demand for legal clarity. This change is particularly significant as the U.S. risks falling behind other major jurisdictions, such as the European Union, which has adopted the regulatory framework MiCA.

Coinbase, a Key Player for the Future of Crypto Assets

Coinbase is not a minor player in this legal battle. As the largest crypto exchange in the U.S., it has emerged as the industry’s voice advocating for fair and appropriate regulation.

This favorable judgment is the second setback for the SEC in a week. The previous week, another court criticized the agency’s approach as arbitrary and whimsical.

These legal victories bolster Coinbase’s credibility and send a strong message to other crypto companies: challenging the SEC’s decisions can be successful.

Coinbase CEO, Brian Armstrong, stated:

“We simply ask for clear rules of the game so that entrepreneurs can innovate in full compliance. This decision is a step in the right direction.”

According to him, crypto companies are not seeking to evade regulation but to have a clear framework for legal operation.

An Industry Awaiting an Appropriate Legal Framework

The lack of clear crypto rules in the U.S. has hindered numerous businesses. Some have even relocated their operations to countries with more favorable regulations, such as the United Arab Emirates or Singapore.

This situation has significant economic consequences. According to a recent study, the crypto industry could generate up to $150 billion by 2030, but this would require establishing a coherent legal framework.

The current uncertainty also makes investors anxious. In 2023, over 10% of funds dedicated to U.S. crypto startups were redirected to Europe and Asia. The clarification demanded by the court could reverse this trend, making the U.S. more attractive to industry businesses.

With this judgment, the ball is now in the SEC’s court. A clear and constructive response could restore confidence to investors and the entire industry. Conversely, another evasive response could escalate tensions between the agency and crypto ecosystem players.