The US Securities and Exchange Commission must now thoroughly “explain itself” for refusing to grant Coinbase.’s formal request that the agency write rules for how the industry should assess whether cryptoassets are securities or not, according to a circuit court ruling on Monday.

A three-judge panel of the US Court of Appeals for the Third Circuit, in a legal rebuke of the securities regulator, sided in part with Coinbase’s efforts to get the agency to offer legal clarity in writing crypto rules.

“Rather than compel the agency to make a rule, we order it to explain its decision not to do so,” one of the judges wrote. “A rule may not actually prove necessary to resolve the notification issues here; the agency could just state its position on cryptoassets unequivocally.”

Judge Stephanos Bibas added a warning to the SEC: “It should not provide another bad explanation in an already long line of them.”

The legal blow to the agency — the second setback in a Coinbase-related case in less than a week — could leave an opening for its new leadership. Chairman Gary Gensler, the architect of the SEC’s crypto-enforcement-heavy approach in recent years, will step down when 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 requirement to answer that yes, his agency will change its course on crypto surveillance.

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

Monday’s ruling called the SEC’s crypto actions “arbitrary and capricious,” echoing language from the DC 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 that case. However, the circuit court did not believe that Coinbase’s arguments justified a clear need to require new rules from the regulator.

“We are reviewing the decision and will decide next steps as appropriate,” an SEC spokesman said in response to a request for comment.

“We appreciate the court’s careful consideration,” Coinbase Chief Legal Officer Paul Grewal said in a post on social media X. His company’s pursuit of this petition with the SEC is one of a number of legal battles Coinbase has waged with the agency, including its defense to an SEC enforcement action. Last week, a federal court granted the exchange’s effort to expedite a key legal issue in that case to an appeals court.

Read more: Coinbase makes significant progress in court clash with Gensler’s SEC

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

“If the SEC were to issue a rule banning cryptoassets, it would certainly face legal challenges,” Judge Bibas noted. “One wonders whether an agency whose mission is to maintain fair, orderly, and efficient markets is authorized to ban a new technology… So the SEC has sidestepped the rulemaking by pursuing a de facto ban through enforcement instead .”