A federal appellate court has directed the US Securities and Exchange Commission (SEC) to revisit its rejection of Coinbase’s petition for new digital asset regulations, calling the decision “arbitrary and capricious.”

The court did not compel the SEC to draft new digital asset regulations, as Coinbase requested, but required a more detailed explanation for the denial.

Judge Stephanos Bibas highlighted constitutional concerns, criticized the SEC for lacking clear guidance for crypto firms while suing them for noncompliance.

The SEC is reviewing the ruling, with any further response expected under its incoming leadership following the current chair’s resignation.