The U.S. Securities and Exchange Commission must now thoroughly «explain itself» for refusing to grant Coinbase.’s formal request that the agency write regulations for how the industry should assess whether crypto assets are securities or not, according to a circuit-court ruling on Monday.

A three-judge panel for the U.S. Court of Appeals for the Third Circuit, in a legal rebuke of the securities regulator, partially sided with Coinbase’s effort to get the agency to offer legal clarity by writing crypto regulations.

«Rather than force the agency to make a rule, we order it to explain its decision not to,» one of the judges wrote. «Indeed, a rule may not prove necessary to solve the notice problems here; the agency could just state its position on crypto assets unequivocally.»

Judge Stephanos Bibas added a caution to the SEC: «It should not give yet another poor explanation in an already-long line of them.»

The legal blow for the agency — the second setback in a Coinbase-related case in less than a week — could leave an opening for its new leadership. Chair Gary Gensler, the architect of the SEC’s crypto enforcement-heavy approach in recent years, is stepping down as President-elect Donald Trump is sworn in on January 20. Trump’s chosen replacement, former Commissioner Paul Atkins, could have a chance to use this court demand to answer that, yes, his agency will change its course on crypto oversight.

Or, even sooner, an acting chairman such as sitting Commissioner Mark Uyeda, one of the agency’s two current Republican members, could be in a position to get that ball rolling while Atkins awaits a Senate confirmation process.

The Monday ruling called the SEC’s crypto actions «arbitrary and capricious,» echoing language from the D.C. Circuit Court of Appeals when it rejected the agency’s opposition to Grayscale’s application for a spot bitcoin (BTC) exchange-traded fund (ETF).

«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,» the judges ruled in this case. However, the circuit court didn’t believe Coinbase’s arguments justified a clear need to demand new rules from the regulator.

“We’re reviewing the decision and will determine next steps as appropriate,» a spokesperson for the SEC said in response to a request for comment.

«We appreciate the court’s careful consideration,» said Coinbase Chief Legal Officer Paul Grewal, in a posting on social-media site X. His company’s pursuit of this petition with the SEC is one of a number of court battles Coinbase has been waging with the agency, including its defense against an SEC enforcement action. Last week, a federal court granted the exchange’s effort to accelerate a key legal question in that case to an appeals court.

Read More: Coinbase Granted Significant Advance in Court Clash With Gensler’s SEC

While the partial ruling against the SEC was forceful, one of the judges added his more blistering view on the agency’s performance in this case.

«If the SEC were to promulgate a rule banning crypto assets, it would surely face legal challenges,» Judge Bibas noted. «One might wonder if an agency whose mission is maintaining fair, orderly, and efficient markets is authorized to ban an emerging technology. … So the SEC has sidestepped the rulemaking process by pursuing a de facto ban through enforcement instead.»