Emily Walker
Recently, the Securities and Exchange Commission (SEC), led by Gary Gensler, has faced criticism for its enforcement-driven approach to cryptocurrency regulations. There is a growing demand for clearer guidelines in the crypto sector.
Today, significant progress was made as a federal judge in Texas rejected the SEC’s definition of the broker-dealer rule. The SEC’s definition included all liquidity providers and market makers with capital exceeding $50 million.
Judge Reed O’Connor stated that the SEC has exceeded its authority by creating a broad and inconsistent definition of “dealer” that does not align with the actual text and intent of the Exchange Act.
This ruling has been celebrated by the crypto community, with Marisa Tashman Coppel from the Blockchain Association calling it a massive victory for the industry.
DEALER RULE STRUCK DOWN! SEC exceeded its statutory authority. HUGE win for the entire industry @BlockchainAssn and @CryptoFreedomTX !!! pic.twitter.com/Zv1Mhv1uwl
— Marisa Tashman Coppel (@MTCoppel) November 21, 2024
SEC’s Broad Definition of Broker-Dealer
On February 6, 2024, the SEC introduced new regulations for market participants, updating the broker-dealer definition. Under these new rules, those with capital over $50 million must register as dealers or securities dealers.
At the time of adoption, over 40 market participants were required to register under these newly defined broker regulations.
Critics have argued that the SEC’s requirements are excessive, especially regarding KYC protocols imposed on decentralized platforms lacking central management.
Judge Claims Abuse of Authority
Judge O’Connor also asserted that the SEC has abused its powers. He noted that the rules proposed by the SEC are disconnected from existing securities laws in the U.S.
Following the SEC’s revision of definitions in February 2024, complaints were lodged in court by various critics, including the Crypto Freedom Alliance and the Blockchain Association, challenging the agency’s authority.
Uncertain Future for the SEC
The SEC is entering a period of uncertainty, particularly as Chairman Gary Gensler has announced plans to step down on January 20, 2025. Gensler expressed his intention to resign in a Twitter post on November 22.
On January 20, 2025 I will be stepping down as @SECGov Chair.
A thread
— Gary Gensler (@GaryGensler) November 21, 2024
O’Connor’s ruling poses a significant challenge to the SEC. Although the agency can appeal this decision in the 5th Circuit Court of Appeals, this outcome marks a substantial setback. With a change in leadership following an anticipated Trump presidency, the crypto sector may anticipate more favorable regulations.
Featured image from DALL-E, chart from TradingView