Coinbase, Inc. v. SEC, 2025 U.S. App. LEXIS 653 (3rd Cir. Ct. of App., January 13, 2025)(Ambro, J.)
Coinbase Global, Inc., a trading platform that facilitates the exchange of digital assets, petitioned the Securities and Exchange Commission (SEC) to promulgate rules clarifying how and when the federal securities laws apply to digital assets like cryptocurrencies and tokens. Coinbase argued in its petition that the existing securities-law framework does not account for certain unique attributes of digital assets, which make compliance economically and even technically infeasible. It also asserted that the SEC has exacerbated these difficulties by failing to articulate a clear and consistent position about when a digital asset is a security, and thus subject to the federal securities laws at all. The SEC denied Coinbase’s rulemaking petition. In a single paragraph, it explained that it disagreed with the petition’s concerns; that it had higher-priority agenda items—namely, everything else it was doing; and that it may prefer to gather additional information through incremental action before engaging in more far-reaching rulemaking. Coinbase’s U.S. subsidiary, Coinbase, Inc., petitions us to review the SEC’s denial.
Before us is whether the Administrative Procedure Act (APA), 5 U.S.C. § 500 et seq., or other principles of administrative law require the SEC to engage in notice-and-comment rulemaking and, if not, whether the SEC’s explanation for its decision was sufficiently reasoned. 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. But we decline at this stage to order the agency to institute rulemaking proceedings.