UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

No. 23-3202

COINBASE, INC.,

Petitioner

v.

SECURITIES AND EXCHANGE COMMISSION

On Petition for Review of Securities and Exchange Commission Order (No. 4-789)

_____________________________

Argued on September 23, 2024

Before: BIBAS, FREEMAN, and AMBRO, Circuit Judges

(Filed January 13, 2025) Eugene Scalia [ARGUED] Jonathan C. Bond D. Nicholas Harper GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, NW Washington, DC 20036 Counsel for Petitioner Tracey A. Hardin David D. Lisitza Ezekiel L. Hill [ARGUED] SECURITIES AND EXCHANGE COMMISSION 100 F Street, NE Washington, DC 20549 Counsel for Respondent Kyle D. Hawkins LEHOTSKY KELLER COHN LLP 408 West 11th Street 5th Floor Austin, TX 78701 Counsel for Amicus-Petitioner Paradigm Oper- ations LP Jeremy M. Creelan Kayvan B. Sadeghi JENNER & BLOCK LLP 1155 Avenue of the Americas New York, NY 10036 Michelle Kallen STEPTOE LLP 1330 Connecticut Avenue NW Washington, DC 20036 Counsel for Amicus-Petitioner Crypto Council for Innovation

2 Eric Tung JONES DAY 555 South Flower Street 50th Floor Los Angeles, CA 90071 Counsel for Amicus-Petitioner Chamber of Com- merce of the United States of America Frank Scaduto WILEY REIN LLP 2050 M Street NW Washington, DC 20036 Counsel for Amicus-Petitioner Satoshi Action Fund and Texas Blockchain Council

3 OPINION OF THE COURT

AMBRO, Circuit Judge

Coinbase Global, Inc., a trading platform that facilitates the exchange of digital assets, petitioned the Securities and Ex- change 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 compli- ance economically and even technically infeasible. It also as- serted 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 peti- tion’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 be- fore 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 adminis- trative 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

4 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 rule- making proceedings. I. BACKGROUND A. What Are Digital Assets? Coinbase is a trading platform for digital assets. They come in many forms—coins and tokens are the most popular— but their common attribute is that they are issued and trans- ferred using a “blockchain,” which is essentially a decentral- ized public ledger spread across a network of many computers. See What Is Blockchain?, IBM, https://perma.cc/5C8Y-ET76. Unl