The U.S. Securities and Exchange Commission (SEC) has faced a significant legal setback in its regulatory approach to cryptocurrencies following a ruling by the Third Circuit Court of Appeals. The court found the SEC's denial of Coinbase's petition for rulemaking on digital assets to be 'conclusory and insufficiently reasoned,' and thus 'arbitrary and capricious.' This decision requires the SEC to provide a more detailed explanation for its stance on regulating digital assets. The ruling comes as SEC Chair Gary Gensler prepares to step down on January 20, amid criticism for his 'regulation-by-enforcement' approach. Gensler has defended his tenure, emphasizing investor protection and denying that his policies influenced the 2024 election outcome. The incoming SEC leadership, potentially under Paul Atkins, is expected to address this issue, which could lead to clearer regulations for the cryptocurrency industry.